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Firm performance and compensation structure: performance elasticities of average employee compensation
Agency costs are a cost of production, and firms that do a better job of minimizing these costs should exhibit better performance. This paper tests this hypothesis by calculating the performance elasticity of average employee hourly compensation for U.S. manufacturing firms. This elasticity indicate...
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Published in: | Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2003-06, Vol.9 (3), p.333-352 |
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Main Author: | |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that this one cites Items that cite this one |
Online Access: | Get full text |
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Summary: | Agency costs are a cost of production, and firms that do a better job of minimizing these costs should exhibit better performance. This paper tests this hypothesis by calculating the performance elasticity of average employee hourly compensation for U.S. manufacturing firms. This elasticity indicates the degree of alignment between employee and shareholder objectives. The estimated elasticity is indistinguishable from zero in low performance firms, and it equals 0.193 in high performance firms. While it is difficult to know whether an elevated performance sensitivity
causes better firm performance, clearly the best performers in manufacturing industries link average employee pay to performance. |
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ISSN: | 0929-1199 1872-6313 |
DOI: | 10.1016/S0929-1199(02)00017-2 |