How Do Labor Representatives Affect Incentive Orientation of Executive Compensation?

Katharina Dyballa () and Kornelius Kraft
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Katharina Dyballa: TU Dortmund

No 10153, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 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.

Keywords: corporate finance; principal-agent theory; board representation; executive compensation; Hausman-Taylor (search for similar items in EconPapers)
JEL-codes: C33 G32 J52 L20 M12 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-08
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-hrm and nep-lab
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Published - published in: CESifo Economic Studies, 2020, 66 (1), 60 - 90

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