Abstract
Abstract 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 2006–2011 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. (JEL codes: J52, L20, G32, M12, C33)
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