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Management Compensation and the Economic Crisis: Longitudinal Evidence from the German Chemical Sector

  • Grund, Christian

    ()

    (RWTH Aachen University)

  • Walter, Tanja

    ()

    (RWTH Aachen University)

Making use of unique balanced panel data for the German chemical sector from the years 2008 to 2011, we explore the extent to which managers' compensation was affected by the economic crisis and the extent to which it increased afterwards. Carrying out longitudinal analyses, we find that, on average, bonus payments (in contrast to fixed salaries) decrease considerably during the crisis. The economic upturn in 2011 then leads to an average increase in variable payments and total compensation to even above the pre-crisis level. Changes in bonus payments are negatively correlated over time. We find considerable differences across employees with respect to changes in bonus payments. Fixed salary changes are much more homogeneous over the period of crisis. We explore determinants of compensation changes and find that changes in compensation have a strong relationship with employees' age, firm size and hierarchical level. Our findings hint at the relevance of an incentive perspective. We also examine that certain parts of managers seem to have more power to influence their compensation than others. Inequality in managers' compensation decreased during the crisis.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7435.

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Length: 35 pages
Date of creation: May 2013
Date of revision:
Publication status: forthcoming in: Review of Managerial Science
Handle: RePEc:iza:izadps:dp7435
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