Corporate Ownership and Employee Compensation

Abstract

The rise of active corporate owners has raised questions about their influence on stakeholder outcomes, particularly regarding employee compensation. Using detailed compensation records from 20 million employees across 896 U.S. firms, we document that firms controlled by active owners—hedge funds and private equity firms—pay 2 to 4% less for comparable work relative to other firms. These differences arise through lower base pay, particularly for lower-skilled workers, as well as flatter incentive structures, particularly for higher-skilled workers. These compensation differences are concentrated among workers in routine jobs, with active owners paying 2-5 % less and 7-20% lower bonus-to-base ratio for comparable work, while showing minimal difference among workers in non-routine positions. Through analyses of private equity buyouts, matched comparisons, and lead-lag tests, our evidence suggests these patterns reflect, at least partially, an ownership treatment effect. Altogether, our results suggest that these owners either place less value on routine work or substitute financial incentives with input monitoring and control. These patterns suggest that differences in ownership structure manifest not only in firm strategy and governance, but also in fundamental approaches to motivating and managing employees.

Keywords: Corporate ownership, governance, corporate strategy, stakeholder strategy 

JEL Classification: G34, M12, M52