The existing debate about policies designed to foster the development of a stakeholder economy have 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. We find that a doubling of firm value increases employee pay in these firms by approximately 14 percent. 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 awards. 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.
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Publisher Info
Paper provided by EconWPA in its series Labor and Demography with number
9612001.
Length: 17 pages Date of creation: 11 Dec 1996 Date of revision:
28 Jan 1999 Handle: RePEc:wpa:wuwpla:9612001
Note: Type of Document - MS-Word 7.0; prepared on IBM PC; to print on HP; pages: 17; figures: included Contact details of provider: Web page: http://129.3.20.41
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