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The size of employee stakeholding in large UK corporations

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  • Bruce A. Rayton

    (School of Management, University of Bath, Bath, UK)

  • Jonathan S. Seaton

    (Department of Economics, Loughborough University, UK)

Abstract

The existing debate about policies designed to foster the development of a stakeholder economy has largely avoided a fundamental question. How large is the financial stake employees currently hold in their companies? This paper addresses this question using data from the Datastream database, and finds that there is already a significant link between the pay of rank and file employees and the performance of their firms. It is found that a doubling of firm value increases employee pay in these firms by approximately 14%. Firms with explicit profit-sharing arrangements have a performance elasticity of approximately 0.32, while firms without explicit profit-sharing arrangements have a performance elasticity of only 0.11. This indicates that flexibility of pay is not limited to the explicit profit-sharing award. This is further substantiated by the finding that even after controlling for the levels of profit-sharing pay, the performance elasticity in the profit sharing firms is 0.27. These estimates are by no means a complete measure of the stakeholding relationship, but they do quantify the financial relationship between firms and a group of primary stakeholders: the workers. Copyright © 1999 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 20 (1999)
Issue (Month): 5 ()
Pages: 259-266

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Handle: RePEc:wly:mgtdec:v:20:y:1999:i:5:p:259-266

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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References

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  1. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  2. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  3. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 227-51, February.
  4. Hilderth, A.K. & Oswald, A.J., 1993. "Rent-Sharing and Wages: Evidence form Company and Establishment Panels," Economics Series Working Papers 99154, University of Oxford, Department of Economics.
  5. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps.
  6. Bruce Rayton, 1997. "Rent-sharing or incentives? Estimating the residual claim of average employees," Applied Economics Letters, Taylor & Francis Journals, vol. 4(12), pages 725-728.
  7. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
  8. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 985-1002, August.
  9. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory Investment, Internal-Finance Fluctuation, and the Business Cycle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 75-138.
  10. Bhargava, Sandeep, 1994. "Profit-Sharing and the Financial Performance of Companies: Evidence from U.K. Panel Data," Economic Journal, Royal Economic Society, vol. 104(426), pages 1044-56, September.
  11. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  12. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
  13. Coughlan, Anne T. & Schmidt, Ronald M., 1985. "Executive compensation, management turnover, and firm performance : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 43-66, April.
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Cited by:
  1. Rayton, Bruce A., 2003. "Firm performance and compensation structure: performance elasticities of average employee compensation," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 333-352, June.
  2. Vicente Cuñat & María Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," CEP Discussion Papers dp0687, Centre for Economic Performance, LSE.

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