Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States
AbstractThis paper analyzes executive compensation in German and U.S. corporations for the period 2005-2009 including the financial crisis. We analyze the impact of stock market performance and accounting-based measures of firm performance on different compensation components. We find that only firm earnings explain total executive compensation in both samples while stock market performance does not. Cash bonus payments of German executives are explained by firm earnings and not by stock returns while U.S. bonuses are also determined by stock returns. Moreover, the sensitivity of cash bonuses to firm performance depends on firm risk and firm size. We also provide evidence that firms choose performance measures with low volatility. Finally, we find that pay-performance sensitivities are higher in the U.S. than in Germany, but have no robust explanation how long-term compensation such as company stock and options is granted in either country.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-29.
Length: 52 pages
Date of creation: 23 Nov 2012
Date of revision:
Find related papers by 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 - - Business Administration - - - Personnel Management; Executives; Executive Compensation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-10 (All new papers)
- NEP-BEC-2012-12-10 (Business Economics)
- NEP-EUR-2012-12-10 (Microeconomic European Issues)
- NEP-HRM-2012-12-10 (Human Capital & Human Resource Management)
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