Executive compensation: evidence from the UK and Germany

Abstract

This article concerns the determination of executive pay in the UK and Germany. These economies have very different corporate governance structures and we examine whether this has implications for executive pay outcomes. Our research shows that average pay in the UK was about £391,000 in 1994, compared to about £200,000 in Germany. Our data, however, have a time series dimension. Pay has increased in both economies over time, but the UK has had a faster rate of growth in the post-1980s period. Importantly, in our time period each economy had a different structure of pay: UK CEOs received stock options (which can contribute to the growth rate) whereas German executives—until recently—did not. The gap between CEO pay and that of other employees is higher in the UK than in Germany. Regression results reveal a positive and significant association between cash pay and company performance in both countries. However, we show that there is cross-section variation in the pay-performance relation, a result that many prior studies have overlooked.