Jonathan S. Leonard

Executive Pay and Firm Performance

This study examines the effects of executive compensation policy and organizational structure on the performance of 439 large U.S. corporations between 1981 and 1985. Companies with long-term incentive plans enjoyed significantly greater increases in ROE (return on equity) than did companies without such plans, and by 1985 long-term incentive plans had been nearly universally adopted by large corporations. Corporate success was not significantly related to the level of, or degree of equity in, executive pay, or to the steepness of pay differentials across executive ranks; it was, however, positively related to the extent of hierarchical structure, which appears to have been the primary mechanism for sorting individuals by human capital endowments and performance.

Carrots and Sticks: Pay, Supervision and Turnover

The efficiency wage model (EWM) has been advanced as an explanation for large and persistent wage differentials. The shirking version of the EWM assumes a trade-off between self-supervision and external supervision. The turnover version assumes turnover is costly to the firm. Variation across firms in the cost of monitoring/shirking or turnover then is hypothesized to account for wage variations across firms for homogeneous workers. Using a new sample of firm data, this paper presents empirical evidence of the trade-off of wage premiums for supervisory intensity and turnover. Little evidence is found to support either version of the EWM.

Accounting for the Decline in Union Membership, 1950–1980:

This study analyzes the components of the post-1950 trends in the share of the private work force organized by unions, which rose from 1950 to 1954 and then fell steadily to 1980. The authors decompose the sources of growth and decline into changes in organizing activity, success in certification elections, losses from decertification elections, and net growth due to economic causes—the last a residual measure designed to capture the effect of factors such as plant closings, layoffs, and new hires. They find that all factors except decertifications accounted for a substantial part of the decline since 1954. When the level of aggregate economic activity is held constant, loss of membership due to other economic causes shows no downward trend, a finding that challenges the view that the decline in the unionized share of the work force has been due primarily to a secular decline in employment in the strongly unionized industries.

Antidiscrimination or Reverse Discrimination: The Impact of Changing Demographics, Title VII, and Affirmative Action on Productivity

This study estimates the changes over time in the relative productivities of minorities and females. I find no significant evidence that the productivity of minorities or females decreased relative to that of white males as relative minority and female employment increased during the 1960s and 1970s. This study also compares the impact of Title VII and affirmative action and presents evidence that Title VII litigation has played a significant role in increasing black employment. This suggests that the employment of minorities and females has not entailed large efficiency costs and that Title VII litigation has had some success in fighting racial discrimination. The EEOC has sometimes been credited with opening up new pools of labor that corporations somehow contrived to ignore, and occasionally with hastening the breakdown of traditional barriers to labor mobility.... But in the context of the markets endless search for efficiency, these anomalies would have been eliminated anyway, leaving only the question of whether they were worth the expenditures compelled by law. Affirmative action is a net cost to the economy....And the true dynamic effects-the opportunity cost of all this expense and effort, the diminution of competition, inefficiencies due to the employment and promotion of marginal labor and the consequent demoralization of good workers-can only be a matter of conjecture, although they are clearly the most important of all. Senator Orrin Hatch, 1980

The interaction of residential segregation and employment discrimination

Abstract This paper seeks to disentangle the impact of residential segregation from that of employment discrimination in determining black employment share. The major finding is that distance of a workplace from the main ghetto is one of the strongest and most significant determinants of both changes over time and levels of the racial composition of the workforce. This paper presents evidence of more heterogeneous micro labor supply within SMSAs than has usually been recognized for policy purposes. Comparing Chicago with Los Angeles, we find that distance from the ghetto has a stronger impact in Chicago, and that this effect increased during the late 1970s. By contrast, residential segregation is relatively less important in determining workplace demographics in Los Angeles, despite its rudimentary public transit system and prototypical job dispersion. In both cities, residential segregation strongly influences black employment patterns and limits the efficacy of efforts to integrate the workplace.

What Promises are Worth: the Impact of Affirmative Action Goals

Affirmative action goals and timetables for the employment of minorities and females have been criticized by some as being ineffective,and by others as being a system of rigid quotas. Using new data from OFCCP administrative records, this paper estimates the impact of detailed regulatory pressure on goals and on subsequent employment demographics. It also tests for the information content of the goals.While the goals are inflated and are not being fulfilled with the rigidity one might expect of quotas, the establishments that promise to employ more minorities and females do actually employ more in subsequent years. While the detailed enforcement tools of the compliance review process are of doubtful utility, the system of affirmative action goals does appear to have prompted increases in minority and female employment at reviewed establishments.

THE EFFECT OF DIVERSITY ON TURNOVER: A LARGE CASE STUDY

Using longitudinal data collected in 1996–98 from over 800 similar workplaces owned and operated by one corporation, the authors examine how workplace diversity and employee isolation along the dimensions of gender, race, and age affected employee turnover. This design controls for much of the variation in job characteristics and labor markets that have confounded other studies of diversity. The authors use the non-linearity of diversity to distinguish its effect from the main effects of demographic groups and from isolation (being in a numerical minority). The study examines how diversity and isolation by race (white, black, Hispanic, Asian), sex, and age affected different groups. The authors find no consistent evidence that diversity itself increased turnover. In contrast, isolation from coworkers and from customers was often associated with higher turnover.

Racial Bias in the Manager-Employee Relationship An Analysis of Quits, Dismissals, and Promotions at a Large Retail Firm

Using data from a large U.S. retail firm, we examine how racial matches between managers and their employees affect rates of employee quits, dismissals, and promotions. We exploit changes in management at hundreds of stores to estimate hazard models with store fixed effects that control for all unobserved differences across store locations. We find a general pattern of own-race bias in that employees usually have better outcomes when they are the same race as their manager. But we do find anomalies in this pattern, particularly when the manager-employee match violates traditional racial hierarchies (for example, nonwhites managing whites).

Affirmative Action as Earnings Redistribution: the Targeting of Compliance Reviews

Affirmative action may be broadly conceived of as pursuing either the goal of reducing discrimination or that of redistributing jobs and earnings. I attempt to infer the ends of affirmative action policy by analyzing the historical record of enforcement. Optimal enforcement strategies are developed for both the antidiscrimination and the earnings redistribution models and then compared with new data on the actual targeting of affirmative action compliance reviews during the late 1970s. I find that establishments with very low proportions of minority or female workers are not significantly more likely to be reviewed, but that white-collar-intensive establishments are more likely to be reviewed. This indicates the shortcomings of the antidiscrimination model in explaining the OFCCPs behavior and suggests the potential usefulness of the earnings redistribution model.

Diversity, Discrimination, and Performance

Employee diversity may affect business performance both as a result of customer discrimination and as a result of how members of a group work with each other in teams. We test for both channels with data from more than 800 retail stores employing over 70,000 individuals, matched to Census data on the demographics of the community. We find little payoff to matching employee demographics to those of potential customers except when the customers do not speak English. Diversity of race or gender within the workplace does not predict sales or sales growth, although age diversity predicts low sales.