Do Entrenched Managers Pay Their Workers More?







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    • Henrik Cronqvist is at Ohio State University; Fredrik Heyman is at the Research Institute of Industrial Economics; Mattias Nilsson is at University of Colorado at Boulder; Helena Svaleryd is at the Research Institute of Industrial Economics; and Jonas Vlachos is at Stockholm University, the Research Institute of Industrial Economics, and CEPR. We acknowledge helpful comments from Raj Aggarwal, Arturo Bris, François Degeorge, PA Edin, Rudi Fahlenbrach, Mariassunta Giannetti, Yaniv Grinstein, Campbell Harvey (the editor), Jean Helwege, David Hirshleifer, Clifford Holderness, Andrew Karolyi, Augustin Landier, Assar Lindbeck, Marco Pagano, Bob Parrino, Pat Reagan, Kristian Rydqvist, Per Strömberg, Bruce Weinberg, Ingrid Werner, Fabrizio Zilibotti, and seminar participants at the American Finance Association, European Finance Association, European Economic Association, Financial Management Association, Western Finance Association, Zurich Conference on Alternative Views of Corporate Governance, Institute for International Economic Studies, Ohio State University (Department of Finance and Department of Economics), Research Institute of Industrial Economics, Swedish Institute for Financial Research, University of Colorado at Boulder, and Uppsala University. The comments by an anonymous referee, the Associate Editor, Angie Low, and René Stulz were particularly helpful. We are grateful to Statistics Sweden, MM Partners, and Findata for providing firm-, subsidiary-, and worker-level data for this project, and to Henrik Lindberg at the RATIO Institute for sharing with us his data on labor market conflicts. Excellent research assistance was provided by John Christensen. Finally, we thank CIBER, the Family Owned Business Institute at Grand Valley State University, the Jan Wallander and Tom Hedelius Research Foundation, the Swedish Research Council, and the Marianne and Marcus Wallenberg Foundation for financial support.


Analyzing a 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 cash flow rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer to them in the corporate hierarchy, geographically closer to the headquarters, and associated with conflict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation.