Pay-Performance Relationship in German State-Owned Enterprises : Evidence and Reflection for Organizational Success Research with Undistorted and 'Right' Data

Empirical studies show that state-owned enterprises (SOEs) are very important for society. The compensation of executive directors is crucial in the debate on effective, efficient and sustainable public service provision. Nevertheless, there are very few empirical studies in the international literature for SOEs – in contrast to the private sector.This paper examines the pay-performance relationship of executive directors from 176 SOEs in eleven sectors by assessing 498 annual statements. As a methodological contribution, the paper illustrates the necessity of the adjustment of balance sheet data to obtain meaningful, undistorted performance ratios.The findings show no significant link between financial performance ratios and the executive director compensation. There are no differences between the association with the compensation for ROE and ROA, although ROA would be a more meaningful indicator. A bonus-malus system is often required but not structurally practiced by a majority of SOEs. New insights show the need for additional research activities as well as the necessity for policy makers for clear rules for the compensation of executive directors in SOEs