We analyze a hand-collected dataset of 1682 executive compensation packages at 34 firms in-cluded in the main German stock market index (DAX) for the years 2009-2017 in order to in-vestigate 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 Germany’s DAX30-firms are closely linked to key performance measures such as return-on-assets and size. Second, and most important for our topic, our findings suggest that it is essential to take a closer look at the contractual set-up for the compensation schemes and their structure. When we only consider the compensation packages of all board members, the hypothesis that remuneration is decreased if shareholder support for compensation schemes is low in say on pay-votes finds only weak support, if any at all. However, we find that the su-pervisory board is responsive to say on pay-votes when it comes to the design of compensation packages for newly entering candidates, i.e. within the binding restrictions of contract law, it reacts as envisioned by policy makers. It is a consequence of the way say on pay is supposed to work that our results are driven by the rather few pronouncedly discontent say on pay-votes in corporate Germany – only where disapproval is voiced supervisory boards have reason to change compensation packages. They leave matters unaffected where shareholders show rather strong support for the proposed schemes as is the case in most of the observations in our dataset. 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 re-muneration agreements and thus has to take a medium to long-term view that ideally extends to a full turnover-period for board-members.
European Company and Financial Law Review , Vol. 16, Issue 3, pp. 381–414, 2019