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Management compensation and the economic crisis: longitudinal evidence from the German chemical sector

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Abstract

Making use of unique balanced panel data for the German chemical sector from the years 2008 to 2011, we explore the extent to which managers’ compensation was affected by the economic crisis and the extent to which it increased afterwards. Carrying out longitudinal analyses, we find that, on average, bonus payments (in contrast to fixed salaries) decrease considerably during the crisis. The economic upturn in 2011 then leads to an average increase in variable payments and total compensation to even above the pre-crisis level. Changes in bonus payments are negatively correlated over time. We find considerable differences across employees with respect to changes in bonus payments. Fixed salary changes are much more homogeneous over the period of crisis. We explore determinants of compensation changes and find that changes in compensation have a strong relationship with employees’ age, firm size and hierarchical level. Our findings hint at the relevance of an incentive perspective. We also examine that certain parts of managers seem to have more power to influence their compensation than others.

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Notes

  1. Pooled OLS regression as well as fixed effects regression results on the logarithm of compensation components as dependent variables confirm our results (available upon request).

  2. Contrary to our results, Kampkötter and Sliwka (2011) show bonus payments of non-executive bank managers at higher hierarchical levels to be more negatively affected by the financial crisis indicating a positive relationship between financial performance and variable payments.

  3. The detailed results are provided by the authors on request.

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Authors and Affiliations

  1. RWTH Aachen University, Templergraben 64, 52056, Aachen, Germany

    Christian Grund & Tanja Walter

Authors
  1. Christian Grund
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  2. Tanja Walter
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Correspondence to Christian Grund.

Appendix

Appendix

See Fig. 6 and Tables 5, 6, 7, 8.

Fig. 6
figure 6

Proportion of eligible managers without bonus (zero bonus payments)

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Table 5 Pooled (median) regression on the logarithm of compensation components
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Table 6 Variable definitions and operationalizations
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Table 7 Median regression on indexed total compensation from 2010 to 2011 (2010 = 100)
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Table 8 OLS regressions on indexed compensation components with firm clusters
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Grund, C., Walter, T. Management compensation and the economic crisis: longitudinal evidence from the German chemical sector. Rev Manag Sci 9, 751–777 (2015). https://doi.org/10.1007/s11846-014-0136-6

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