SAFE Working Paper No. 125

Does Say on Pay Matter? Evidence from Germany

We analyze a hand-collected dataset of 1626 executive compensation packages at 34 firms included in the main German stock market index (DAX) for the years 2006-2014 in order to investigate the impact of the 2009 say on pay legislation. The findings provide important insights beyond the German case, not only for the impending implementation of the revised European Shareholder Rights Directive.

First, we observe that the compensation packages of management board members of DAX30- firms are closely linked to key performance measures such as return-on-assets and EBIT. Second, we find that say on pay votes which occurred in the time period under investigation had a negative effect on compensation of board members, be it fixed or variable pay. Our analysis also shows that this effect is mainly driven by the compensation payment of newly entering board members. When we consider only compensation contracts, which had been concluded before say on pay votes occurred, the effect of shareholder involvement is rather weak. This finding is not at all surprising given the rather rigid contractual framework for the compensation of management board members. Yet, it is important because it informs our understanding of the channels through which say on pay works. Our observations carry over to the general analytical approach for say on pay-regimes. Any evaluation of a shareholder voice-strategy in regulating executive remuneration has to pay close attention to the limits contract law stipulates for the adaptation of existing remuneration agreements and thus has to take a medium to long-term view that ideally extends to a full turnover-period for board-members. For Germany, we find that the supervisory board is indeed responsive to say on pay-votes when it comes to the design of remuneration packages for newly entering appointees to the management board.