Faculty of Economics and Business Administration Publications Database

Corporate Governance and Pay for Performance: Evidence from Germany

Edwards, Jeremy S. S.
Eggert, Wolfgang
Volume: 10
Number: 1
Pages: 1 - 26
Month: January
ISSN-Print: 1435-6104
Link External Source: Online Version
Year: 2009
Keywords: Ownership Structure; Manager Remuneration; Pay for Performance; Corporate Governance; Germany
Abstract: This paper investigates how two distinctive features of the German corporate governance system—concentrated ownership structure and representation of employees on firm supervisory boards—influence the sensitivity of managerial pay to firm profitability. There is a positive, though very small, link between pay and profitability for widely held firms. The presence of a largest owner seems hardly to affect this link in any economically significant way. However, the link between pay and profitability is smaller and indeed not significantly different from zero in firms whose largest owner is a German financial institution. This suggests that large owners tend to act as a substitute for rather than a complement to performance related pay in Germany.