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Compensation Policy, Human Resource Management Practices and Takeovers. David N. MARGOLIS CNRS, TEAM-Université Paris 1 Panthéon-Sorbonne, INSEE-CREST and IZA Presentation prepared for the DTI/PSI workshop “Making Linked Employer-Employee Data Relevant to Policy Analysts”.

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compensation policy human resource management practices and takeovers

Compensation Policy, Human Resource Management Practices and Takeovers

David N. MARGOLIS

CNRS, TEAM-Université Paris 1 Panthéon-Sorbonne, INSEE-CREST and IZA

Presentation prepared for the DTI/PSI workshop

“Making Linked Employer-Employee Data Relevant to Policy Analysts”

takeovers firms and workers
Takeovers, Firms and Workers

Takeovers are not a new phenomenon

Source: FactSet Mergerstat LLC, U.S. Bureau of Labor Statistics.

Despite importance for economic growth, they get bad press because of perceived implications for workers

policy issues involved
Policy Issues Involved
  • Which firms are likely to be acquired and by whom?
  • Are there really more layoffs ex-post?
  • If so, who gets laid off?
  • How much extra help might these people need to find new jobs?
the economist s perspective
The Economist’s Perspective
  • Controlling the actions of incumbent management
  • Costly capital and the lack of investment opportunities
  • Attaining a critical mass
  • Increasing market share
  • Enforcement of threats under tacit collusion
  • Insurance against market-specific risks
how do leed help
How Do LEED Help?
  • Employer-side data
    • Sectoral data: Can’t see who does what
    • Firm account data: Can’t see the people
    • Specific surveys: Can’t follow the same people, lack of representativity
  • Employee-side data
    • Basically inexistent
    • Workers do not know details of employer’s accounts

Panel LEED data can solve all of these problems

the data used here
The Data Used Here
  • MDST: Covers all asset transfers over a certain size (8M French Francs), with classification of type of transfer
  • FUTE: Firm financial accounts (balance sheet, income statement, flow of funds and tax records)
  • DADS: Linked employer-employee data covering 1/25 of the French population any time they are employed
  • EDP: Additional individual information drawn from census records, birth and death records, marriage registrations…

ALL OF THESE DATA CAN BE MERGED DUE TO COMMON IDENTIFIERS

what distinguishes acquired and acquiring firms from others
Acquired Firms

Compensation Policy: Lower starting and seniority pay than acquiring, higher than controls

HR Practices: Lower seniority than acquiring, More men, more older, white collar and “expensive” workers than controls

Firm Accounts: Fewer employees, higher debt/assets and ROA than acquiring

Acquiring Firms

Compensation Policy: Higher starting and seniority pay than acquired, higher than controls

HR Practices: Higher seniority than acquired, More men, more older, white collar and “expensive” workers than controls

Firm Accounts: More employees, lower debt/assets and ROA than acquired

What Distinguishes Acquired and Acquiring Firms from Others?
who stays who goes10
Who Stays, Who Goes?

Layoffs Not Evenly Distributed Across Workforce:

Buyers Exploit New Information

  • Similar patterns in acquired and acquiring firms:
    • HR Practices: Younger, less senior, male, white collar, “inexpensive” workers leave more
    • Firm Accounts: Employees of larger firms leave more, no role for productivity or profitability
  • Difference concerning Compensation Policy: Workers at firms with particularly low starting and seniority pay leave more
conclusion leed data and takeovers
ConclusionLEED Data and Takeovers
  • Allow us to confirm economists’ ideas about takeovers
    • Managerial control explanation seems valid
    • So does investment opportunities explanation
  • Allow us to characterize which firms are on each side of the transaction
    • Depends only characteristics observable without any private information
  • Allow us to see where the layoffs come from
    • Mostly acquired firms
  • Allow us to see who gets laid off and when
    • Lots of differences
    • Large layoffs up-front in acquired firms, more delayed in acquiring firms
conclusion policy implications
ConclusionPolicy Implications
  • Smaller firms disappear due to inability to access affordable capital
    • Capital Market Failures?
    • Role for Public Subsidies of Start-Ups?
  • Acquired firms do lay off more than others
    • Some planning can be undertaken since similar types of workers are laid off

BUT

    • May not necessitate significant additional resources since laid off workers possess characteristics associated with faster job finding