How Do Labor Representatives Affect Incentive Orientation of Executive Compensation?

Abstract

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)

Labour-friendly practices and value maximization: a SEM approach

“…However, there is some indication that top leadership does not elicit financial gains from labour-friendly company policies (Faleye and Trahan, 2011). This is supported in an IZA report claiming that “management board compensation provides incentives that are not conducive to pursuing shareholders’ interests” (Dyballa and Kraft, 2020). The evidence, therefore, points towards genuine care for employee well-being as a catalyser of increased productivity and profitability (Mahony et al , 2014; Faleye and Trahan, 2011).…”

Analysis of Executive Compensation Management Strategies of Multinational Enterprises in the Context of RMB Internationalization

“…In a period of economic structural transformation, excessive income inequality within the enterprise will damage the enthusiasm of individual employees working within the enterprise [7]. Therefore, for enterprise managers, attention should be paid to the reasonable adjustment of the pay gap between executives and between executives and ordinary employees [8]. On the one hand, it is necessary to focus on optimizing the remuneration structure, strengthening corporate governance, especially independent director governance, and giving full play to the supervisory role of independent directors [9].…”