Ownership and Pay in Britain

Date01 December 2017
AuthorAndrew Pendleton,Howard Gospel,Alex Bryson
Published date01 December 2017
DOIhttp://doi.org/10.1111/bjir.12241
British Journal of Industrial Relations doi: 10.1111/bjir.12241
55:4 December 2017 0007–1080 pp. 688–715
Ownership and Pay in Britain
Andrew Pendleton, Alex Bryson and Howard Gospel
Abstract
Drawing on principal–agent perspectives on corporate governance, the article
examines whether employees’ hourly pay is related to ownership dispersion.
Using linked employee-workplacedata from the British Workplace Employment
Relations Survey 2011, and using a variety of techniques including interval
regression and propensity score matching, average hourly pay is found to be
higher in dispersed ownership workplaces. The premium is broadly constant
across most of the wage distribution, but falls at the 95th percentile to become
statistically non-significant. This contrasts with earlier papers which indicate
that higher level employees are the primary beneficiaries of higher pay from
dispersed ownership. The dispersed ownership pay premium is not readily
explained by eciency wage perspectives but is consistent with a managerial
desire for a ‘quiet life’.
1. Introduction
Industrial relations (IR) scholars have recently highlighted the potential for
ownership and corporate governance (CG) to influence a range of human
resource management (HRM) and IR characteristics (Black et al. 2007;
Gospel and Pendleton 2003, 2005; Kim and Kim 2014; Konzelmann et al.
2008; Liu et al. 2014; Sj¨
oberg 2009). In this vein, this article considers whether
employee pay diers between workplaces where ownership is dispersed and
those where it is more concentrated. Drawing on agency theory, the starting
point is that managers have greater discretion (vis-`
a-vis owners) in wage-
setting when ownership is widely held, because dispersed owners have weaker
incentives to monitor managersthan those with more concentrated ownership.
For various reasons, managers may exploit this discretion to pay their
Andrew Pendletonis at Durham University Business School. Alex Bryson is at University College
London – Institute of Education, IZA Bonn and the National Institute of Economic and Social
Research.Howard Gospel is at King’s College London, Said Business School Oxford,and LUISS
Rome.
C
2017 John Wiley & Sons Ltd.
Ownership and Pay in Britain 689
workforces(and themselves) more than in those workplaces with concentrated
ownership.
Matched employee and establishment data from the Workplace
Employment Relations Survey (WERS), conducted in Great Britain in 2011,
are used to examine this question. The main result is clear and consistent:
dispersed ownership is associated with higher hourly pay, even after the
inclusion of an extensive range of demographic, job and workplace controls.
Log hourly average pay diers by about 0.30 log points. However, workers
in dispersed ownership workplaces have several characteristics typically
associated with higher pay: in particular, there is a greater proportion of
higher level occupations with an accompanying higher level of qualifications.
But even after taking these and other compositional factors into account,
there is a pay gap of around 0.07 log points. This ownership premium is
similar in magnitude to that found in one of the fewother studies of this topic
(Cronqvist et al. 2009).
A striking and original feature of our results is that a pay dierential is
found across most of the wage distribution. The raw gap in average hourly
pay rises across most of the distribution but falls somewhat at the top end.
Once workerand workplace characteristics are added, the ownership premium
settles at around 0.07 log points across most of the pay distribution except
at the 95th percentile where the premium is smaller and non-significant. In
fact, a comparison of managers and other occupations finds thatthe dispersed
ownership premium for managers is lower than for other occupations and is
non-significant. This finding contrasts with the rest of the literature,where top
managers are found to be the primary beneficiaries of dispersed ownership.
These results contribute to a growing literature in labour economics, IR
and HRM which relates variations in employee remuneration to ownership
and governance characteristics (Bertrand and Mullainathan 2003; Cronqvist
et al. 2009; Gorton and Schmidt 1999; Kim and Kim 2014; Konzelmann
et al. 2008; Krueger 1991; Liu et al. 2014; Werner et al. 2005). The results are
also consistent with a longer tradition highlighting pay dierentials between
firms for otherwise similar employees (reviewed below), though our focus
on ownership dispersion is a novel one. This study is also notable for using
employee rather than enterprise-level pay data. This gives us two advantages
over nearly all other studies of ownership and pay. First, we are able to
quantify the role of worker and workplace characteristics to a much greater
extent. Second, we can examine paydierences across the pay distribution and
thus evaluate the extent to whichany pay premium extends beyond managers.
The reasons for the pay premium in dispersed ownership workplaces are
considered in the article. Some have argued or implied that dierential
application of eciency wages is responsible for pay dierences between
dispersed and concentrated ownership (Gorton and Schmidt 1999; Harrell-
Cook and Ferris 1997; Liu et al. 2014). We are inclined to discount
this explanation because the pay gap persists after worker quality is
controlled for, some of our results seem to be inconsistent with eciency
wages, and moreover there is no clear theoretical reason why dispersed
C
2017 John Wiley& Sons Ltd.

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