Does Codetermination Affect the Composition of Variable Versus Fixed Parts of Executive Compensation?

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. 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".

Board-Level Worker Representation

“…A later study by Dyballa and Kraft (2015) reports somewhat different results concerning the management compensation in BLWR firms. The authors argue that workers' representatives might be inclined to support performance-based compensation in order to ensure the firm's survival in the long term.…”