Three Essays on Executive Compensation - KOPS - Universität ...

Which Pay for what Performance? Evidence from Executive
Compensation in Germany and the United States
U.S. executive compensation with an average of 43 percent.
German executives
received only 12 percent of total compensation as long-term components (and for
many German executives this share was zero or negligibly small as can be seen in
the median share of 0 percent) 30 . Hence the fraction of long-term components in
total compensation is much larger for U.S. executives than for the German peer
group. This finding confirms earlier studies such as Conyon and Schwalbach (1999)
or Abowd and Bognanno (1995) who find that U.S. executives receive substantially
more long-term oriented pay (both in level and as a fraction of total pay) than
executives in 11 other OECD countries 31 including Germany.
Table 2.2 shows the development of executive compensation over time. The left
part shows that average total compensation of German executives was around 1.1
million Euro during the years 2005-2007 but slightly below 1.0 million Euro in 2008
and 2009. From these summary statistics, however, it is not obvious whether there
was truly a reduction in compensation levels during the years 2008 and 2009. From
the bottom of Table 2.2 we see that there is a change in the sample composition over
time. In 2005 and 2006 we cover fewer executive observations in fewer firms than
in 2007-2009 because fewer firms published individual compensation data. Those
firms publishing compensation data already in 2005 and 2006 were large firms as is
evident in larger average and median firm size in those years. Since we know from
earlier studies that large firms tend to pay more, the decline in compensation levels
over time may be due to an increasing proportion of smaller firms in our sample. For
U.S. executives we observe only a minor reduction in average compensation levels
from around 2.2 million U.S. Dollar in 2005 to 2.1 million U.S. Dollar in 2009. The
sample size of U.S. executives and the average U.S. firm size does not change as
much over time as in the German sample. We also observe that in every year of
our sample period, except for 2009, the average firm in the German sample is larger
than the average U.S. firm, while the median firm size is substantially larger in the
U.S. sample throughout the sample period.
Table 2.2 also presents the composition of total compensation over time. In both
30 These numbers are very similar to the numbers presented for Germany and the U.S. in Fernandes
et al. (2013) for the year 2006.
31 Abowd and Bognanno (1995) do not have an explanation for this finding. For long-term
compensation components such as stock options tax treatment and disclosure rules differ between
countries. However, tax treatment cannot explain why non-U.S. executives receive much less of
this type of compensation and disclosure rules are generally more restrictive in the U.S. than in
other OECD countries (p. 90).
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