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Does Codetermination Affect the
Composition of Variable Versus Fixed Parts of Executive Compensation? -An Empirical Analysis for Listed Companies in GermanyKatharina Dyballa ** and Kornelius Kraft *** June 2015
AbstractContrary to previous literature we hypothesize that interests of labor may welllike that of shareholders -aim at securing the long-run survival of the firm. Consequently, employee representatives on the supervisory board could well have an interest in increasing incentive-based compensation to avoid excessive risk taking and short-run orientated decisions. We compile unique panel data on executive compensation over the periods 2006 to 2011 for 405 listed companies and use a Hausman-Taylor approach to estimate the effect of codetermination on the compensation design. Finally, codetermination has a significantly positive effect on performance-based components of compensation, which supports our hypothesis.
JEL-Codes: J52; L20; G32; M12; C33Key words: Executive Compensation, Codetermination, Principal-Agent Theory, Corporate Governance, Hausman-Taylor Acknowledgements: We are very grateful to the Kienbaum Consulting AG for the kind provision of extensive data on management compensation. We should also like to thank the Hans Böckler Stiftung for kindly providing information on coverage of German firms by codetermination. We also thank the Deutsche Forschungsgemeinschaft for financial support via SFB 823 "Statistical modelling of nonlinear dynamic processes".
Contrary to previous literature we hypothesize that labor’s interest may well—like that of shareholders—aim at securing the long-run survival of the firm. Consequently, employee representatives on the supervisory board could well have an interest in increasing incentive-based compensation to avoid management’s excessive risk taking and short-run oriented decisions. We compile unique panel data on executive compensation over the periods 2006–2011 for 405 listed companies and use a Hausman–Taylor approach to estimate the effect of codetermination on the compensation design. Finally, codetermination has a significantly positive effect on performance-based components of compensation, which supports our hypothesis. (JEL codes: J52, L20, G32, M12, C33)
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