Claudine Gartenberg and Elaine Pak (Under Review), Corporate Ownership and Employee Compensation.
Abstract: This study documents that firms with active corporate owners compensate their employees less than their peers. We analyze over 20 million employee records from 897 US firms and calculate pay differentials for employees in comparable positions across firms. The analysis yields three main insights. First, firms with external active owners (i.e., hedge funds and private equity firms) pay 3 to 5% less than other firms for comparable work. Second, these pay differentials correspond to differences in rent-sharing practices across these firms: firms with external active owners provide flatter incentives (i.e., lower bonus to base pay) and are less likely to grant equity to employees. Lastly, lower pay for comparable work does not correspond to higher profits for firms, even within industries that depend relatively more on cost management than on innovation. All together, these results are consistent with corporate owners having different orientations toward human capital, which in turn may reflect differing strategic approaches toward value creation and appropriation.
