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Rent-Sharing or Incentives? Estimating the Residual Claim of Average Employees

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  • Bruce A. Rayton

    (University of Bath School of Management)

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, and the agency literature bases its prediction on the importance of incentives in principal-agent relationships. Annual data from an unbalanced panel of U.S. 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 link between pay and performance evident in U.S. manufacturing firms is inconsistent with the exclusive truth of the rent-sharing hypothesis.

Suggested Citation

  • Bruce A. Rayton, 1996. "Rent-Sharing or Incentives? Estimating the Residual Claim of Average Employees," Labor and Demography 9603002, University Library of Munich, Germany, revised 16 Apr 1998.
    • Handle: RePEc:wpa:wuwpla:9603002
    Note: This paper was published in Applied Economics Letters, 1997, 4, 725-728. (December)
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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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