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Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States

Author

Listed:
  • Moritz Heimes

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

  • Steffen Seemann

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

Abstract

This 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.

Suggested Citation

  • Moritz Heimes & Steffen Seemann, 2012. "Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States," Working Paper Series of the Department of Economics, University of Konstanz 2012-29, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1229
    as

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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_Heimes-Seemann_29-12.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Pay for Performance; Executive Comepensation; Incentives;

    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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