Open AccessCorporate governance reporting: Compliance with upper limits for severance payments to members of executive boards in Germany
Author(s) -
Alexander Dilger,
Ute Schottmüller-Einwag
Publication year - 2020
Publication title -
corporate law and governance review
Language(s) - English
Resource type - Journals
eISSN - 2707-1111
pISSN - 2664-1542
DOI - 10.22495/clgrv2i2p2
Subject(s) - severance , conformity , corporate governance , accounting , business , executive compensation , payment , finance , economics , law , political science , labour economics
We examine how corporate governance reporting corresponds to actual conduct regarding severance payment caps for prematurely departing members of executive boards in Germany. Firstly, we evaluate the declarations of conformity for all companies listed in the CDAX between 2010 and 2014, which we use to determine conformity and deviation rates, and analyse the reasons for deviation, contributing to current research on comparative corporate governance, which focuses on when, why and how companies deviate from legitimate corporate governance goals (Aguilera, Judge, & Terjesen, 2018). Secondly, we assess the compensation amounts of all severance payments made and published by DAX companies to compare the respective severance ratio with the cap recommended by the German Corporate Governance Code (GCGC). We find that more than 20% of companies listed in the CDAX declared deviation in the declaration of conformity. Moreover, in 57% of actual severance cases where DAX companies had previously declared their conformity, the cap was exceeded. Yet, none of the companies that had exceeded the cap disclosed this in the following declaration of conformity. In most cases, the corporate reports deviated from reality and therefore could not serve as a suitable basis for decisions by the capital market.