The Metamorphosis of 'Germany Inc.': The Case of Executive Pay
Posted: 2 Jan 2002
The German system of corporate governance differs considerably from its counterparts in the United States and the United Kingdom. There is anecdotal evidence, however, that suggests market forces are serving to destabilize traditional structures in Germany and are causing some form of convergence along "Anglo-American" lines. One by-product of this trend could be that German companies will adopt an increasingly Anglo-American approach when they deal with managerial remuneration issues. This paper examines the implications of such a trend.
If shareholder-oriented Anglo-American corporate governance patterns become well-established in Germany, German executives will likely earn more than they do at present, though future increases in pay will be partly conditional upon corporate performance. An increasingly globalized market for executive talent will reinforce the momentum for change. Various factors could delay the process (e.g., tax policy, interest group hostility, regulation) but these seem to be diminishing in importance.
If the Anglo-American approach to executive pay becomes influential in German companies, issues that have been controversial in the US and the UK likely will capture attention in Germany. For instance, there will be debate about disclosure regulation and the role that board committees and shareholders should play in the setting of managerial remuneration policy. It remains an open question, though, whether it will be beneficial for German companies to change radically their approach to executive pay.
JEL Classification: G30, J33, J38
Suggested Citation: Suggested Citation