The impact of family influence and supervisory boards on the basis of executive compensation: Evidence from Germany

Abstract

In the international literature, there exists a lively discussion about the fundamentals of different executive compensation models. Executive compensation is relevant not only from the point of view of corporate management but also from the point of view of corporate governance and here potential information asymmetries and corporate misconduct. Internal or external metrics, in particular, are used as the basis for compensation. In family businesses, which per se are less likely to offer variable compensation to their executives, it is assumed that internal rather than external metrics are more likely to be used as the basis for compensation. This paper tests this thesis on the basis of an empirical survey of 113 German companies. The empirical study shows clear differences in the use of internal and external metrics as a basis for executive compensation — a fact that has so far not been addressed in other empirical studies.