Research Handbook on Executive Pay
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Research Handbook on Executive Pay

Edited by Randall S. Thomas and Jennifer G. Hill

Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay.
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Chapter 23: Executive Compensation under German Corporate Law: Reasonableness, Managerial Incentives and Sustainability in Order to Enhance Optimal Contracting and to Limit Managerial Power

Brigitte Haar


* Brigitte Haar What do Klaus Esser and Mickey Mouse have in common? This could be the overarching theme when looking at the German corporate law rules of executive remuneration. In the long-lasting Disney Litigation the Delaware court finally did not hold the Disney directors liable for damages, even though they had approved a US$140 million compensation package for the number-two executive at Disney, Michael Ovitz, who lacked any managerial experience in a public corporation and whose tenure was considered a failure.1 According to the Delaware court, the board was protected by the business judgment rule. In the Mannesmann case involving a US$17 million bonus payment to the Mannesmann CEO Klaus Esser, the members of the compensation committee of the supervisory board were charged with making illegal payments during the firm’s takeover by Britain’s Vodafone in 2000 and faced criminal sanctions.2 Although the latter were based on the actus reus of misappropriation, the violation of the German Penal Code required a judicial review of the severance package, which was guided by corporate law  standards. Therefore, at the bottom line the court analysis made reference to the appropriateness of the bonus awards under German corporate law, accepting a margin of business judgment as well. The role of business judgment as a determinant of executive remuneration in judicial review shows the evolution of the underlying corporate law rules because in the Mannesmann case a paradigm change was beginning to unfold. With a closer look at the correlation between executive compensation and...

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