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Executive Pay and Performance in the UK 1994-2002

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Author Info
Paul Gregg
Sarah Jewell
Ian Tonks ()

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Abstract

This paper examines the relationship between executive cash compensation and company performance for a sample of large UK companies over the period 1994-2002. This relationship is examined against a background of a series of reports into corporate governance mechanisms in UK companies. We show that base pay compensation of UK executives has increased substantially over this period, and we provide evidence on the movement in the pay-performance sensitivity over time. We identify an asymmetric relationship between pay and performance: in years and for companies in which stock returns are relatively high, pay-performance elasticities are high, but we find that executive pay is less sensitive to performance in those cases when stock returns are low. This suggests that overall there is little relationship between pay and performance. We also explore the heterogeneity of the pay-performance relationship across firms, and find that board structure, firm size, industry and firm risk are all significant determinants of executive compensation.

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Publisher Info
Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 05/122.

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Length: 40 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bri:cmpowp:05/122

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Related research
Keywords: Executive compensation; pay and performance;

Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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References listed on IDEAS
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    Other versions:
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