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Compensation and Incentives in german Corporations

Author

Listed:
  • Moritz Heimes

    (Department of Economics, University of Konstanz, Germany)

  • Steffen Seemann

    (Department of Economics, University of Konstanz, Germany)

Abstract

In this paper we analyze executive compensation in Germany for the period 2005-2009. We use a self-collected dataset on compensation arrangements in German corporations to estimate the impact of firm performance and firm risk on executive pay. To be in line with earlier studies in this literature, we first measure firm performance and firm risk based on stock market returns. Our findings support the prediction from agency theory that incentive pay decreases with firm risk. We find, however, that stock market returns have no explanatory power in the presence of accounting based performance measures. Based on accounting data we also find a positive impact of firm performance on executive pay and a negative relationship between firm risk and incentive pay for our sample period. We conclude that shareholders use accounting measures rather than stock market data to evaluate and pay for manager performance. We also find that with accounting data we can explain short-term bonus payments but not long-term oriented compensation in German corporations.

Suggested Citation

  • Moritz Heimes & Steffen Seemann, 2011. "Compensation and Incentives in german Corporations," Working Paper Series of the Department of Economics, University of Konstanz 2011-20, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1120
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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_20-11-Heimes-Seemann.pdf
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    Citations

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    Cited by:

    1. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
    2. Pepper, Alexander & Gore, Julie, 2014. "The economic psychology of incentives: An international study of top managers," Journal of World Business, Elsevier, vol. 49(3), pages 350-361.
    3. Pepper, Alexander & Gore, Julie, 2014. "The economic psychology of incentives: an international study of top managers," LSE Research Online Documents on Economics 51655, London School of Economics and Political Science, LSE Library.
    4. Miroslav Nedelchev, 2019. "Theories Of Executive Remuneration," Economics and Management, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 16(1), pages 10-18.

    More about this item

    Keywords

    Pay for Performance; Executive Compensation; Incentives;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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