The Size of Employee Stakeholding in Large UK Corporations
17 Pages Posted: 29 Jan 1997
Date Written: November 1996
Abstract
The existing debate about policies designed to foster the development of a stakeholder economy in the UK have largely avoided a fundamental question. How large is the 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 average employees and the performance of their firms. A doubling of firm value increases the pay of average employees 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 flexibility of pay is not limited to the explicit profit-sharing awards. Even after controlling for the levels of profit-sharing pay, the performance elasticity in the profit-sharing firms is 0.27.
JEL Classification: J32
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