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The Size of Employee Stakeholding in Large UK Corporations

  • Bruce A. Rayton

    (University of Bath)

  • Jonathan S. Seaton

    (Loughborough University)

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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Paper provided by EconWPA in its series Labor and Demography with number 9612001.

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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://128.118.178.162

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  1. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
  2. 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.
  3. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  4. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, March.
  5. 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.
  6. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
  7. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  8. Bruce A. Rayton, 1996. "Rent-Sharing or Incentives? Estimating the Residual Claim of Average Employees," Labor and Demography 9603002, EconWPA, revised 09 Sep 1996.
  9. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
  11. Andrew K.G. Hildreth and Andrew J. Oswald, . "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Economics Discussion Papers 425, University of Essex, 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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