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Compensation and Incentives in german Corporations

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Author Info

  • Moritz Heimes

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Steffen Seemann

    ()
    (Department of Economics, University of Konstanz, Germany)

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    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.

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    Bibliographic Info

    Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-20.

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    Length: 40 pages
    Date of creation: 31 May 2011
    Date of revision:
    Handle: RePEc:knz:dpteco:1120

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    Related research

    Keywords: Pay for Performance; Executive Compensation; Incentives;

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    Cited by:
    1. Katrin Sommerfeld, 2012. "Higher and Higher?: Performance Pay and Wage Inequality in Germany," SOEPpapers on Multidisciplinary Panel Data Research 476, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Alexander Pepper & Julie Gore, 2013. "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.

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