The Effect of Labor Unions on Manager's Cash Compensation and Pay-performance Sensitivity

Abstract

The purpose of this study is to examine the effect of labor unions on manager compensation. Previous research has focused on the effects of manager compensation on firm performance and lacks in - depth discussion on labor unions that can be a key factor in manager compensation. Therefore, this study intends to provide additional evidence on labor unions - related research that plays a role as corporate governance. This study examines the effects of labor unions on manager compensation by regression analysis. Specifically, we analyze the impact of labor unions on managers' cash compensation and identify other pay-performance sensitivities to labor unions and rate of labor union organization. The main results of the analysis are as follows. First, it is found that firms with unions have lower cash compensation than non - firms, and that the higher the rate of labor union organization, the lower the cash compensation. Second, the firms with union have higher managerial pay-performance sensitivity than non - firms, and the higher the rate of labor union organization, the higher the managerial pay-performance sensitivity. The results of this study show that as a corporate governance structure, labor unions can maximize corporate value by reducing managers' opportunistic behavior and acting as an important factor in harmonizing the interests of corporate stakeholders. The results of this study confirm that the role of labor union increases the manager's performance - compensation sensitivity beyond the role of wage negotiation of the employees. Therefore, this study suggests that unions that play a role in corporate governance can be drivers of increased productivity and maximum corporate value.