How Do Labor Representatives Affect Incentive Orientation of Executive Compensation?
31 Pages Posted: 22 Aug 2016
Contrary to previous literature we hypothesize that labor's interest may well – like that of shareholders – aim at securing the long-run survival of the firm. Consequently, employee representatives on the supervisory board could well have an interest in increasing incentive-based compensation to avoid management's excessive risk taking and short-run oriented decisions. We compile unique panel data on executive compensation over the periods 2006 to 2011 for 405 listed companies and use a Hausman-Taylor approach to estimate the effect of codetermination on the compensation design. Finally, codetermination has a significantly positive effect on performance-based components of compensation, which supports our hypothesis.
Keywords: executive compensation, board representation, principal-agent theory, corporate finance, Hausman-Taylor
JEL Classification: J52, L20, G32, M12, C33
Suggested Citation: Suggested Citation