Why big companies pay better

By Felix Salmon
May 26, 2009

I’m not particularly surprised that big companies pay more than small companies. It stands to reason, really: successful companies will (a) be able to pay more than unsuccessful companies; and (b) be much more likely to grow to a large size.

The advantages of working for a small company don’t come in your regular paycheck. Instead, there’s more option value, if you’re at a start-up: the small but valuable chance that the company will be a huge success. Plus there’s often more collegiality and less bureaucracy, and any one individual has a much greater chance of being able to make visible change happen. But if you mainly want to maximize your take-home pay, working for the man has a lot to be said for it.

8 comments

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I think some smaller organizations may be able to pay more because the food chain is smaller. the less blood sucking overhead (employees) between you and the top. The higher the salary.

Posted by herb | Report as abusive

So, how’s Reuters treatin’ ya?

Small companies are more variable though, so some small companies pay very well although most do not.

The flaw here is the average for a large company includes a lot of vastly overpaid executives at the top. Someone starting out or in middle management could easily find it better at a small company, it is just they have less height to grow.

I’ll bet you 100 bucks that the difference disappears if you control for public ownership.

Public companies pay better than private ones.
Google “agency costs”

Posted by Dave | Report as abusive

Small companies can pay fairly well if you are the owner and bury a lot of expenses in the business, plus use the ability to set aside more in the deferred comp plans. Other than that, for a business of any size, a small firm is not so great. I worked for a number of small firms and the variety was not more wonderful than the lack of benefits, lack of raises (somehow the owners felt your salary came out of their own pocket), and lack of credibility when looking to move to another firm.

For most people, a big company provides more in benefits, especially health care where more is covered, and credibility when switching jobs. Plus you can do your actual job and not have to pitch in and fix the copier or some other menial task because the firm really is that small.

Posted by Laocoon | Report as abusive

Big companies pay you more, so you have to follow up more game rules in the company. You get paid more, you have less freedom. It’s fair.

Posted by Fang | Report as abusive

This is a common finding with no known explanation – observationally equivilent workers receive a wage premium at larger companies – even within the same industry. It is a stylized fact in search of a good theory to explain it.

As for increased opportunites at small firms – I know of no evidence that wage growth is larger for workers at small firms. It may be the case that workers do prefer the working environment in smaller companies – however, turnover is generally greater at small firms as well. It might be the case that small firms provide workers an opportunity to build skills and experience that they can use to find a better paying job elsewhere.

Posted by DCeconomist | Report as abusive