Do Entrenched Managers Pay Their Workers More?

Posted: 25 Feb 2008

See all articles by Henrik Cronqvist

Henrik Cronqvist

University of Miami - Department of Finance

Fredrik Heyman

Research Institute of Industrial Economics (IFN)

Mattias Nilsson

U.S. Securities and Exchange Commission

Helena Svaleryd

Uppsala University

Jonas Vlachos

Stockholm University - Department of Economics; Research Institute of Industrial Economics (IFN)

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Abstract

Analyzing a panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers' pay. CEOs with more control pay their workers more, but financial incentives through cash flow rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer in the corporate hierarchy, geographically closer to the headquarters, and associated with conflict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation.

Keywords: Corporate governance, agency problems, private benefits, matched employer-employee data, wages

JEL Classification: G32, G34, J31

Suggested Citation

Cronqvist, Henrik and Heyman, Fredrik and Nilsson, Mattias and Svaleryd, Helena and Vlachos, Jonas, Do Entrenched Managers Pay Their Workers More?. Journal of Finance, forthcoming. Available at SSRN: https://ssrn.com/abstract=1096388

Henrik Cronqvist

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
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(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Fredrik Heyman

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se

Mattias Nilsson (Contact Author)

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
United States

Helena Svaleryd

Uppsala University ( email )

P.O. Box 513
Uppsala, 75120
Sweden

Jonas Vlachos

Stockholm University - Department of Economics ( email )

Stockholm, 10691
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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