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Do Entrenched Managers Pay Their Workers More?

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Author Info
Cronqvist, Henrik (Ohio State U)
Heyman, Fredrik (Research Institute of Industrial Economics)
Nilsson, Mattias (U of Colorado, Boulder)
Svaleryd, Helena (Research Institute of Industrial Economics)
Vlachos, Jonas (Stockholm U)

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Abstract

Analyzing a large 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 ownership of cash flow rights mitigate such behavior. These findings do not seem to be driven by productivity differences, and are not affected by a series of robustness tests. Moreover, we find that entrenched CEOs pay more to (i) workers associated with aggressive unions; (ii) workers closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives; and (iii) workers geographically closer to the corporate headquarters. This evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain workers. More generally, our results show that managerial ownership and corporate governance can play an important role for labor market outcomes.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2007-7.

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Date of creation: Oct 2007
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Handle: RePEc:ecl:ohidic:2007-7

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G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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