Working Paper: NBER ID: w29377
Authors: Nicholas Bloom; Scott W. Ohlmacher; Cristina J. Tellotrillo; Melanie Wallskog
Abstract: Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners.
Keywords: Productivity; Management Practices; Wage Inequality
JEL Codes: J01; L01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm productivity (D22) | employee pay (J33) |
| structured management practices (L23) | employee pay (J33) |
| employee pay (J33) | pay volatility for top earners (J39) |
| firm productivity (D22) | pay volatility for top earners (J39) |
| structured management practices (L23) | pay volatility for top earners (J39) |
| firm productivity (D22) | employee pay (public firms) (J33) |
| firm productivity (D22) | employee pay (private firms) (J33) |
| firm productivity (D22) | structured management practices (L23) |
| structured management practices (L23) | firm productivity (D22) |