Linking Executive Compensation to Retained Earnings – A Study of German Savings Banks

29 Pages Posted: 7 Jan 2020

See all articles by Daniel Blochinger

Daniel Blochinger

Ulm University - Institute of Economics

Date Written: December 16, 2019

Abstract

Performance linked compensation for executives can incentivize effort and commitment but can also induce increased risk taking. The German savings bank associations RSGV and SVWL recommend their members to make executive compensation increase both in performance and in the stock of retained earnings. We use a unique public data set to analyze the relationships of retained earnings, executive compensation, risk and state level savings bank laws in German savings banks. We find that the recommendation of RSGV and SVWL provides a good fit to compensation data. However, we find a marginally significant negative relationship of equity ratios and executive compensation, which is especially strong for members of RSGV and SVWL. This is the opposite of what the recommendation suggests. Finally, we identify several properties of state level savings bank laws as further determinants of equity ratios.

Keywords: savings banks, executive board compensation, variable compensation, equity, risk taking

JEL Classification: M12, G21, G28

Suggested Citation

Blochinger, Daniel, Linking Executive Compensation to Retained Earnings – A Study of German Savings Banks (December 16, 2019). Available at SSRN: https://ssrn.com/abstract=3504746 or http://dx.doi.org/10.2139/ssrn.3504746

Daniel Blochinger (Contact Author)

Ulm University - Institute of Economics ( email )

Helmholtzstraße 16
Ulm, 89081
Germany

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