Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States

Moritz Heimes () and Steffen Seemann ()
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Moritz Heimes: Department of Economics, University of Konstanz, Germany
Steffen Seemann: Department of Economics, University of Konstanz, Germany

No 2012-29, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: This paper analyzes executive compensation in German and U.S. corporations for the period 2005-2009 including the financial crisis. We analyze the impact of stock market performance and accounting-based measures of firm performance on different compensation components. We find that only firm earnings explain total executive compensation in both samples while stock market performance does not. Cash bonus payments of German executives are explained by firm earnings and not by stock returns while U.S. bonuses are also determined by stock returns. Moreover, the sensitivity of cash bonuses to firm performance depends on firm risk and firm size. We also provide evidence that firms choose performance measures with low volatility. Finally, we find that pay-performance sensitivities are higher in the U.S. than in Germany, but have no robust explanation how long-term compensation such as company stock and options is granted in either country.

Keywords: Pay for Performance; Executive Comepensation; Incentives (search for similar items in EconPapers)
JEL-codes: G30 J33 M12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2012-11-23
New Economics Papers: this item is included in nep-bec, nep-eur and nep-hrm
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