Should Employers Pay Their Employees Better?

33 Pages Posted: 3 Feb 2016

See all articles by Sébastien Valeyre

Sébastien Valeyre

John Locke Investments

Denis Grebenkov

CNRS; Ecole Polytechnique, PMC; PMC, CNRS - Ecole Polytechnique

Qian Liu

John Locke Investments

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Francois Bonnin

John Locke Investments

Date Written: February 2, 2016

Abstract

Should employers pay their employees better? Although this question might appear provoking because lowering production costs remains a cornerstone of the contemporary economy, we present new evidence highlighting the benefits a company might reap by paying its employees better. We introduce an original methodology that uses firm economic and financial indicators to build factors that are more uncorrelated than in the classical Fama and French setting. As a result, we uncover a new anomaly in asset pricing that is linked to the average employee remuneration: the more a company spends on salaries and benefits per employee, the better its stock performs, on average. We ensure that the abnormal performance associated with employee remuneration is not explained by other factors, such as stock indexes, capitalization, book-to-market value, or momentum. A plausible rational explanation of the remuneration anomaly involves the positive correlation between pay and employee performance.

Keywords: Anomalies, Asset Pricing, Remuneration, Performance

JEL Classification: C4, G13, G32

Suggested Citation

Valeyre, Sébastien and Grebenkov, Denis and Liu, Qian and Aboura, Sofiane and Bonnin, Francois, Should Employers Pay Their Employees Better? (February 2, 2016). Available at SSRN: https://ssrn.com/abstract=2726649 or http://dx.doi.org/10.2139/ssrn.2726649

Sébastien Valeyre

John Locke Investments ( email )

38 Avenue Franklin Roosevelt
Fontainebleau-Avon, 77210
France

Denis Grebenkov (Contact Author)

CNRS ( email )

3, rue Michel-Ange
Paris cedex 16, 75794
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg/

Ecole Polytechnique, PMC ( email )

Route de Saclay
Palaiseau, 91128
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg/

PMC, CNRS - Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91128
France
+33169334662 (Phone)
+33169334799 (Fax)

HOME PAGE: http://pmc.polytechnique.fr/pagesperso/dg

Qian Liu

John Locke Investments ( email )

38 Avenue Franklin Roosevelt
Fontainebleau-Avon, 77210
France
33164704044 (Phone)
33160749938 (Fax)

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

Francois Bonnin

John Locke Investments ( email )

38 Avenue Franklin Roosevelt
Fontainebleau-Avon, 77210
France

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