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Journal Article

Management quality, firm size, and managerial compensation: a comparison between Germany and the UK


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This paper considers the relation between management quality, firm size, and managerial compensation. Exploring a German (SOEP) and a British (BHPS) data set we show that the impact of firm size on pay, which is consistently found in the management literature, vanishes (to a large extent) if it is controlled for manager quality. For the UK, we even find negative firm size elasticities. Different corporate governance systems may explain that in Germany the pay/firm size relation can only be partially explained by management quality measures. The impact of manager quality on firm size appears predominantly in the stochastic individual effects. Only for the German sample is the education/firm size-relation significant. Whether this surprising result is due to measurement problems deserves further attention.
Firm Size; Manager Compensation; Returns to Education; Unobserved Ability.

Published in

Schmalenbach Business Review


55 (4):280-293


Management: Business, Organizations And Firms, and Wages And Earnings



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