Abstract
Using a comprehensive dataset of employee-employer-firm owner immigration records in 2001-2017, we examine the impact of immigrant owners’ national culture on within-firm pay inequality. Firms owned by immigrants from more individualistic countries exhibit higher pay dispersion among employees. This result is robust across various empirical methods, including difference-in-differences analysis of ownership changes. Owners’ individualism is associated with their employee compensation structures: more frequent and larger performance pay components—especially for highly educated employees, quicker promotions to high-paying positions, and less pay compression. These findings highlight the role of culture in shaping pay practices and elucidate broader determinants of income inequality.
Valuation Insight
Firms owned by immigrants from more individualistic countries exhibit a higher degree of pay dispersion among their employees. The reasons are a greater emphasis on pay tied to performance and faster promotion of high-performing employees. To the extent that firm value is materially associated with these employee management policies the results suggest a key role of owner cultural background in determining firm value.