Discussion paper

DP5371 Do Entrenched Managers Pay Their Workers More?

Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers? pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behaviour. These findings do not seem to be driven by productivity differences, and are not affected by a series of robustness tests. Moreover, we find that entrenched CEOs pay more to (i) workers associated with aggressive unions; (ii) workers closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives; and (iii) workers geographically closer to the corporate headquarters. This evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain workers. More generally, our results show that managerial ownership and corporate governance can play an important role for labour market outcomes.


Vlachos, J, M Nilsson, H Svaleryd, H Cronqvist and F Heyman (2005), ‘DP5371 Do Entrenched Managers Pay Their Workers More?‘, CEPR Discussion Paper No. 5371. CEPR Press, Paris & London. https://cepr.org/publications/dp5371