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The Size of Employee Stakeholding in Large UK Corporations

Author

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  • Bruce A. Rayton

    (University of Bath)

  • Jonathan S. Seaton

    (Loughborough University)

Abstract

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.

Suggested Citation

  • Bruce A. Rayton & Jonathan S. Seaton, 1996. "The Size of Employee Stakeholding in Large UK Corporations," Labor and Demography 9612001, EconWPA, revised 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
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    References listed on IDEAS

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    Cited by:

    1. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    2. 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.

    More about this item

    Keywords

    stakeholding; incentives; agency costs; profit-sharing; pay-performance sensitivities;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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