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The size of employee stakeholding in large UK corporations

  • Bruce A. Rayton

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

  • Jonathan S. Seaton

    (Department of Economics, Loughborough University, UK)

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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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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  1. 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.
  2. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. 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.
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  10. 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.
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  12. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
  13. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
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