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Does Say on Pay Matter? Evidence from Germany

SAFE Working Paper No. 125

33 Pages Posted: 29 Jan 2016 Last revised: 15 Sep 2017

Tobias H. Troeger

Goethe University Frankfurt - Faculty of Law; Goethe University Frankfurt - Research Center SAFE; European Banking Institute

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE

Date Written: September 13, 2017

Abstract

We analyze a hand-collected dataset of 1626 executive compensation packages at 34 firms included in the main German stock market index (DAX) for the years 2006-2014 in order to investigate the impact of the 2009 say on pay legislation. First, we observe that the compensation packages of management board members of DAX30-firms are closely linked to key performance measures such as return-on-assets and EBIT. Second, we find that say on pay votes which occurred in the time period under investigation had a negative effect on compensation of board members, be it fixed or variable pay. Our analysis also shows that this effect is mainly driven by the compensation payment of newly entering board members. When we consider only compensation contracts, which had been concluded before say on pay votes occurred, the effect of shareholder involvement is rather weak. This finding is not at all surprising given the rather rigid contractual framework for the compensation of management board members. Yet, it is important because it informs our understanding of the channels through which say on pay works. Our observations carry over to the general analytical approach for say on pay-regimes. Any evaluation of a shareholder voice-strategy in regulating executive remuneration has to pay close attention to the limits contract law stipulates for the adaptation of existing remuneration agreements and thus has to take a medium to long-term view that ideally extends to a full turnover-period for boardmembers.

For Germany, we find that the supervisory board is indeed responsive to say on pay-votes when it comes to the design of remuneration packages for newly entering appointees to the management board.

Keywords: executive compensation, say on pay, Germany

JEL Classification: D23, G30, G34, J33, K22

Suggested Citation

Troeger, Tobias H. and Walz, Uwe, Does Say on Pay Matter? Evidence from Germany (September 13, 2017). SAFE Working Paper No. 125. Available at SSRN: https://ssrn.com/abstract=2723792 or http://dx.doi.org/10.2139/ssrn.2723792

Tobias Hans Tröger

Goethe University Frankfurt - Faculty of Law ( email )

Grüneburgplatz 1 (Westend Campus)
Frankfurt, 60323
Germany
+49 69 798 34391 (Phone)
+49 69 798 34536 (Fax)

HOME PAGE: http://www.jura.uni-frankfurt.de/43940696/English-Version

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://safe-frankfurt.de/research/all-researchers/researchers-details/showauthor/prof-dr-tobias-troe

European Banking Institute ( email )

Frankfurt
Germany

Uwe Walz (Contact Author)

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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