IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_3757.html
   My bibliography  Save this paper

What Explains the Rise in CEO Pay in Germany? A Panel Data Analysis for 1977-2009

Author

Listed:
  • Francesca Fabbri
  • Dalia Marin

Abstract

The compensation of executive board members in Germany has become a highly controversial topic since Vodafone’s hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the period 1977-2009 we test two prominent hypothesis in the literature on executive pay: the manager power hypothesis and the efficient pay hypothesis. We find support for the manager power hypothesis for Germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has contributed to the rise in executive pay in Germany. Lastly, we show that CEOs in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on CEO pay in Germany.

Suggested Citation

  • Francesca Fabbri & Dalia Marin, 2012. "What Explains the Rise in CEO Pay in Germany? A Panel Data Analysis for 1977-2009," CESifo Working Paper Series 3757, CESifo.
  • Handle: RePEc:ces:ceswps:_3757
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3757.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Philippon & Ariell Reshef, 2009. "Wages and Human Capital in the U.S. Financial Industry: 1909-2006," NBER Working Papers 14644, National Bureau of Economic Research, Inc.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    3. Cuñat, Vicente & Guadalupe, Maria, 2006. "Globalization and the Provision of Incentives Inside the Firm," CEPR Discussion Papers 5950, C.E.P.R. Discussion Papers.
    4. Conyon, Martin J, 1998. "Directors' Pay and Turnover: An Application to a Sample of Large UK Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(4), pages 485-507, November.
    5. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    6. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    7. Fabien Dell, 2005. "Top Incomes in Germany and Switzerland Over the Twentieth Century," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 412-421, 04/05.
    8. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 653-691.
    9. Dalia Marin, 2009. "The battle for talent- globalisation and the rise of executive pay," Working Papers 236, Bruegel.
    10. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    11. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
    12. Vicente Cuñat & Maria Guadalupe, 2009. "Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 179-212, April.
    13. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    14. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
    15. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    16. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    17. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    18. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    19. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    20. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schymik, Jan, 2013. "Trade, Technologies and the Talent Organization," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79922, Verein für Socialpolitik / German Economic Association.
    2. Michael R. Veall, 2012. "Top income shares in Canada: recent trends and policy implications," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1247-1272, November.
    3. Marin, Dalia & Schymik, Jan & Tarasov, Alexander, 2018. "Trade in tasks and the organization of firms," European Economic Review, Elsevier, vol. 107(C), pages 99-132.
    4. Roland Bénabou & Jean Tirole, 2016. "Bonus Culture: Competitive Pay, Screening, and Multitasking," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 305-370.
    5. Corneo, Giacomo, 2013. "Die relative Bezahlung der Hochqualifizierten in Staat und Privatwirtschaft: Deutschland, 1977-2011," Discussion Papers 2013/19, Free University Berlin, School of Business & Economics.
    6. 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.
    7. Koelling Arnd, 2017. "Labor Demand and Unequal Payments: Does Wage Dispersion Matter? Using German Employer-Employee Data to Analyze the Influence of Intra-Firm Wage Inequality on Labor Demand," Review of Economics, De Gruyter, vol. 68(1), pages 1-39, April.
    8. Arnd Kölling, 2014. "Labor Demand and Unequal Payment: Does Wage Inequality matter? Analyzing the Influence of Intra-firm Wage Dispersion on Labor Demand with German Employer-Employee Data," Working Paper Series in Economics 326, University of Lüneburg, Institute of Economics.
    9. Grund, Christian & Walter, Tanja, 2013. "Management Compensation and the Economic Crisis: Longitudinal Evidence from the German Chemical Sector," IZA Discussion Papers 7435, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    3. Todd M. Alessandri & Anju Seth, 2014. "The effects of managerial ownership on international and business diversification: Balancing incentives and risks," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 2064-2075, December.
    4. mamatzakis, em, 2014. "The effect of corporate governance on the performance of US investment banks," MPRA Paper 60198, University Library of Munich, Germany.
    5. Derek Jones & Panu Kalmi & Mikko Mäkinen, 2010. "The productivity effects of stock option schemes: evidence from Finnish panel data," Journal of Productivity Analysis, Springer, vol. 33(1), pages 67-80, February.
    6. Matthew Lilling, 2006. "The Link Between CEO Compensation and Firm Performance: Does Simultaneity Matter?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(1), pages 101-114, March.
    7. Gibson Hosea Munisi & Roy Mersland, 2016. "Ownership, Board Compensation and Company Performance in Sub-Saharan African Countries," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(2), pages 191-224, August.
    8. Carola Frydman, 2008. "Learning from the Past: Trends in Executive Compensation over the Twentieth Century," CESifo Working Paper Series 2460, CESifo.
    9. Arantxa Jarque, 2008. "CEO compensation : trends, market changes, and regulation," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Sum), pages 265-300.
    10. Carola Frydman, 2019. "Rising Through the Ranks: The Evolution of the Market for Corporate Executives, 1936–2003," Management Science, INFORMS, vol. 65(11), pages 4951-4979, November.
    11. François Rycx & Yves Saks & Ilan Tojerow, 2015. "Does Education Raise Productivity and Wages Equally? The Moderating Roles of Age, Gender and Industry," Working Paper Research 281, National Bank of Belgium.
    12. Muhammad Haris & Hongxing Yao & Gulzara Tariq & Hafiz Mustansar Javaid & Qurat Ul Ain, 2019. "Corporate Governance, Political Connections, and Bank Performance," IJFS, MDPI, vol. 7(4), pages 1-37, October.
    13. Martijn Cremers & Yaniv Grinstein, 2009. "The Market for CEO Talent: Implications for CEO Compensation," Yale School of Management Working Papers amz2385, Yale School of Management, revised 01 Sep 2009.
    14. Marin, Dalia, 2012. "The Theory of the Firm goes Global," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 370, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    15. Fernando Núñez & Ángel Arcos-Vargas & Carlos Usabiaga & Pablo Álvarez-de-Toledo, 2022. "On directors’ compensation: a multilevel analysis of Spanish listed companies," Empirical Economics, Springer, vol. 63(4), pages 2173-2207, October.
    16. Marinovic, Iván & Povel, Paul, 2017. "Competition for talent under performance manipulation," Journal of Accounting and Economics, Elsevier, vol. 64(1), pages 1-14.
    17. Marwa Sallemi & Salah Ben Hamad & Nejla Ould Daoud Ellili, 2023. "Executive compensation and bank’s stability: which role of the corruption control? An empirical evidence from OECD banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 457-477, June.
    18. Muhammad Fayyaz Sheikh & Syed Zulfiqar Ali Shah, 2016. "Executive Compensation, Firm Performance And Corporate Governance In An Emerging Economy," Proceedings of Business and Management Conferences 4406477, International Institute of Social and Economic Sciences.
    19. Munisi, Gibson & Randøy, Trond, 2013. "Corporate governance and company performance across Sub-Saharan African countries," Journal of Economics and Business, Elsevier, vol. 70(C), pages 92-110.
    20. Daniel Beck & Gunther Friedl & Peter Schäfer, 2020. "Executive compensation in Germany," Journal of Business Economics, Springer, vol. 90(5), pages 787-824, June.

    More about this item

    Keywords

    executive compensation; corporate governance;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3757. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.