Conflict or Collusion?: How Employees in the Boardroom Affect Executive Compensation

47 Pages Posted: 19 Jan 2019 Last revised: 23 Jan 2019

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics

Yang Sun

Brandeis University- International Business School

Date Written: January 9, 2019

Abstract

This paper examines how direct involvement of employees in corporate governance affects executive compensation. German law mandates that half of the supervisory board seats belong to employee representatives in firms with over 2,000 domestic employees. For identification, we exploit this discontinuity, a law change which grants employees more influence over compensation, and a combination of both. In all three settings, we find that executive compensation rises by about one-third if employee voice is strengthened. Employees are also better off, as evidenced by increased employment protection. These results support that employee control facilitates the alliance between managers and employees.

Keywords: employee representation, executive compensation, job security, regression discontinuity, difference-in-differences

JEL Classification: G30, G32

Suggested Citation

Lin, Chen and Schmid, Thomas and Sun, Yang, Conflict or Collusion?: How Employees in the Boardroom Affect Executive Compensation (January 9, 2019). Available at SSRN: https://ssrn.com/abstract=3313123 or http://dx.doi.org/10.2139/ssrn.3313123

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Thomas Schmid (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Yang Sun

Brandeis University- International Business School ( email )

415 South Street MS032
Waltham, MA 02453
United States
781-736-4708 (Phone)

HOME PAGE: http://www.brandeis.edu/facultyguide/person.html?emplid=c82c39a3be3416bc5844f2049d540871fd331eaf

Register to save articles to
your library

Register

Paper statistics

Downloads
45
Abstract Views
305
PlumX Metrics