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

23 Pages Posted: 19 Aug 2015

See all articles by Katharina Dyballa

Katharina Dyballa

Technical University of Dortmund

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Date Written: June 2015

Abstract

Contrary to previous literature we hypothesize that interests of labor 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 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.

Keywords: Executive Compensation, Codetermination, Principal-Agent Theory, Corporate Governance, Hausman-Taylor

JEL Classification: J52, L20, G32, M12, C33

Suggested Citation

Dyballa, Katharina and Kraft, Kornelius, Does Codetermination Affect the Composition of Variable Versus Fixed Parts of Executive Compensation? (June 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-053, Available at SSRN: https://ssrn.com/abstract=2645757 or http://dx.doi.org/10.2139/ssrn.2645757

Katharina Dyballa

Technical University of Dortmund ( email )

Emil-Figge-Straße 50
Dortmund, 44227
Germany

Kornelius Kraft (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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