Codetermination and CEO compensation: evidence from Germany
研究了德国共同决定制度对CEO薪酬的影响，发现更高程度的共同决定与更可变动的CEO薪酬、更多递延奖金以及更少股票期权计划相关，且薪酬更常采用员工相关绩效标准。
In the German two-tier system, the board of executives and board of (independent) directors are two distinct bodies; directors may not simultaneously be executives. German regulatory provisions on codetermination require employee representatives to hold at least one-third, and sometimes even half, of the board seats in companies with more than 500 employees. This gives employees some power to influence executive compensation. Given that employees invest specifically in a firm and suffer psychological and financial costs in the event of financial distress, they may be interested in the firm’s long-term performance, low firm risk, and favourable working conditions. Analysing the CEO compensation characteristics of German publicly listed firms for 2015–2022, we find that higher levels of codetermination are associated with more variable CEO pay. Furthermore, under stronger codetermination, CEO compensation is more likely to use deferred bonus compensation. We also find weak evidence that stock option plans are less likely in this scenario. Finally, firms with higher levels of codetermination are more likely to use employee-related performance criteria for variable CEO pay. These results tend to be robust to alternative measures of codetermination and controlling for endogeneity. Overall, our results suggest that codetermination creates long-term incentives for CEO pay.