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Rent-sharing or incentives? Estimating the residual claim of average employees

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  • Bruce Rayton

Abstract

The rent-sharing literature and the agency literature both predict a link between pay and performance. The rent-sharing literature relies on short-term market power to explain this link, while the agency literature bases its prediction on the importance of incentives in principal-agent relationships. Annual data from an unbalanced panel of US manufacturing firms indicate that the performance-elasticity of average employee pay is approximately 0.127271 in small firms while it not significantly different from zero in large firms. The relative lack of incentive pay in the group of large firms demonstrates that the pay-performance link evident in US manufacturing firms is inconsistent with the exclusive truth of the rent-sharing hypothesis.

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  • Bruce Rayton, 1997. "Rent-sharing or incentives? Estimating the residual claim of average employees," Applied Economics Letters, Taylor & Francis Journals, vol. 4(12), pages 725-728.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:12:p:725-728
    DOI: 10.1080/758528715
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    Cited by:

    1. Rayton, Bruce A., 2003. "The residual claim of rank and file employees," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 129-148, January.
    2. Rayton, Bruce A., 2003. "Firm performance and compensation structure: performance elasticities of average employee compensation," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 333-352, June.
    3. Bruce A. Rayton & Jonathan S. Seaton, 1999. "The size of employee stakeholding in large UK corporations," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 259-266.

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    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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