Pay, Productivity and Management

Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with structured management practices, have substantially higher pay, both on average across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst paid employees, a doubling firm productivity associated 11% for highest-paid employee (likely CEO) compared to 4.7% median worker. link holds in public private although it almost twice as employees. Top volatility also strongly related management, suggesting this performance-pay arises from aggressive monitoring incentive practices top earners. Institutional subscribers NBER working paper series, residents developing countries may download without additional charge www.nber.org.