Do Entrenched Managers Pay Their Workers More?

43 Pages Posted: 13 Feb 2006

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)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2005

Abstract

Based on a two-million-observation panel dataset that matches public firms with detailed data on their employees, we find that entrenched managers pay their workers more. For example, our estimates show that CEOs with more control rights (votes) than all other blockholders together, pay their workers about 6%, or $2,200 per year, higher wages. Because cash flow rights ownership by the CEO and better corporate governance are found to mitigate such behaviour, we interpret the higher pay as evidence of agency problems between shareholders and managers affecting workers' pay. The findings do not appear to be driven by endogeneity of managerial ownership and are robust to a series of robustness checks. These results are consistent with an agency model in which managers pay high wages because they come with private benefits for the manager, such as lower-effort wage bargaining and better CEO-employee relations, and suggest more broadly an important link between the external corporate governance of large public firms and labour market outcomes.

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

JEL Classification: G32, G34, J31, J33

Suggested Citation

Cronqvist, Henrik and Heyman, Fredrik and Nilsson, Mattias and Svaleryd, Helena and Vlachos, Jonas, Do Entrenched Managers Pay Their Workers More? (December 2005). CEPR Discussion Paper No. 5371. Available at SSRN: https://ssrn.com/abstract=883717

Henrik Cronqvist (Contact Author)

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

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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