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Are CEOs the Only Residual Claimants? Estimation of the Performance Elasticity of Per-Employee Compensation 

Paper:ewp-io/9412001
From:    (Bruce Rayton) 
Date: Fri, 16 Dec 1994 16:19:58 -0600 (CST)
Date (revised): Fri, 16 Jun 1995 01:16:06 -0500 (CDT)
Date (revised): Fri, 16 Jun 1995 01:27:36 -0500 (CDT)
Date (revised): Mon, 25 Mar 96 10:05:25 CST

Abstract:
This paper evaluates the intensity of the value-maximization incentives for average employees generated through wage, salary, and bonus mechanisms. This is accomplished through estimation of the elasticity of average employee hourly compensation with respect to changes in firm performance. This performance elasticity indicates the degree of alignment between employee and shareholder objectives, and it can also be interpreted as a residual income claim for employees. The estimated performance elasticity for the full sample of firms is indistinguishable from a CEO performance elasticity of 0.1 published in Coughlan and Schmidt (1985). The estimated performance elasticity is 0.152 in small firms and indistinguishable from zero in large firms. While CEO rewards are larger than the rewards of average employees in absolute terms, these rewards represent comparable fractions of income for both the CEO and the average employee. Firms use wage, salary and bonus adjustments to direct approximately 4.1 percent of firm value increases to employees. These results indicate that average employees hold a significant stake in firm performance.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including rfe.wustl.edu, barnett.wustl.edu, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006