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Top Executive Pay in the United Kingdom: A Corporate Governance Dilemma

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  • Phillip McKnight
  • Cyril Tomkins
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    Abstract

    This study represents a first attempt in the UK literature to split total pay into salary, annual bonus and share options for the purpose of empirically verifying how each is related to executive performance. As predicted from earlier studies on total pay, salaries were found primarily determined by firm size. Contarary to prior research, however, our findings suggest a pronounced link does exist between performance and pay over both the short- and long-term. This is manifested particularly by the magnitude of the coefficient estimates found between changes in shareholders return and changes in executive share options. This finding strongly suggests that the leverage executives achieve, on average, in their rewards as share prices increase may well be substantial; a finding that has not been captured in previous research on executive remuneration and which is of considerable relevance to the current corporate governance debates.

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    File URL: http://www.tandfonline.com/10.1080/13571519984241
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 6 (1999)
    Issue (Month): 2 ()
    Pages: 223-243

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    Handle: RePEc:taf:ijecbs:v:6:y:1999:i:2:p:223-243

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    Web page: http://www.tandfonline.com/CIJB20

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    Related research

    Keywords: Executive Pay; Share Options; Bonus; Salary; Black-scholes; Performance;

    References

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    1. Conyon, M.J. & Leech, D., 1993. "Top Pay, Company Performance and Corporate Governance," The Warwick Economics Research Paper Series (TWERPS) 410, University of Warwick, Department of Economics.
    2. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
    3. Conyon, Martin & Gregg, Paul & Machin, Stephen, 1995. "Taking Care of Business, Executive Compensation in the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 704-14, May.
    4. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    7. Main, Brian G M & Bruce, Alistair & Buck, Trevor, 1996. "Total Board Remuneration and Company Performance," Economic Journal, Royal Economic Society, vol. 106(439), pages 1627-44, November.
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    Cited by:
    1. Paul Gregg & Sarah Jewell & Ian Tonks, 2005. "Executive Pay and Performance in the UK 1994-2002," The Centre for Market and Public Organisation 05/122, Department of Economics, University of Bristol, UK.
    2. Rick Antle & Elizabeth Gordon & Ganapathi Narayanamoorthy & Ling Zhou, 2006. "The joint determination of audit fees, non-audit fees, and abnormal accruals," Review of Quantitative Finance and Accounting, Springer, vol. 27(3), pages 235-266, November.

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