More Monitoring, Less Pay: Active Ownership and Employee Compensation

Abstract

The rise of active owners—hedge funds and private equity firms—has raised questions about the influence of corporate owners on employee compensation. Prior research documents that active owners reduce overall compensation through workforce restructuring and slower wage growth. What remains unexplored is whether active owners also pay less for comparable work: whether they compensate the same jobs differently than other owners. Using detailed compensation from more than 20 million employee records across 896 U.S. firms, we compare pay within narrowly defined labor markets that hold constant year, region, occupation, and skill level. We find that firms with active owners pay 2%–4% less for comparable work than other firms. These differentials manifest as both lower base salary and flatter incentive pay and appear to reflect, at least in part, an owner treatment effect. Notably, the effects are concentrated in more monitorable contexts, including routine jobs, jobs with quantifiable outputs, and those in less knowledge-intensive industries. These patterns are consistent with active owners substituting compensation-based incentives with managerial oversight, particularly in quantifiable and routine settings. This suggests that, as work becomes more measurable, firm ownership may play a greater role in shaping employee outcomes. This paper was accepted by Isabel Fernandez-Mateo, organizations. Funding: C. Gartenberg and E. Pak recognize the generous financial support from the Wharton School at University of Pennsylvania. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.08553 .

The authors' abstract, as published at the source. Management Science, 2026 · DOI ↗