Executive Pay and Performance in the UK 1994-2002
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 05/122.
Length: 40 pages
Date of creation: Jun 2005
Date of revision:
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
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Thompson, Steve & Sourafel Girma & Peter W Wright, 2003.
"Corporate Governance Reforms and Executive Compensation Determination: Evidence from the UK,"
Royal Economic Society Annual Conference 2003
202, Royal Economic Society.
- Sourafel Girma & Steve Thompson & Peter W. Wright, 2007. "Corporate Governance Reforms And Executive Compensation Determination: Evidence From The Uk," Manchester School, University of Manchester, vol. 75(1), pages 65-81, 01.
- Rosen, S., 1990. "Contracts and Market for Executives," University of Chicago - Economics Research Center 90-12, Chicago - Economics Research Center.
- John M. Abowd, 1990. "Does performance-based managerial compensation affect corporate performance?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 52-73, February.
- Cosh, Andrew, 1975. "The Remuneration of Chief Executives in the United Kingdom," Economic Journal, Royal Economic Society, vol. 85(337), pages 75-94, March.
- Steven Young, 2000. "The Increasing Use of Non-Executive Directors: Its Impact on UK Board Structure and Governance Arrangements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1311-1342.
- 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.
- Conyon, Martin J & Nicolitsas, Daphne, 1998. " Does the Market for Top Executives Work? CEO Pay and Turnover in Small U.K. Companies," Small Business Economics, Springer, vol. 11(2), pages 145-54, September.
- Brian J. Hall & Kevin J. Murphy, 2000.
"Optimal Exercise Prices for Executive Stock Options,"
NBER Working Papers
7548, National Bureau of Economic Research, Inc.
- Kevin J. Murphy & Brian J. Hall, 2000. "Optimal Exercise Prices for Executive Stock Options," American Economic Review, American Economic Association, vol. 90(2), pages 209-214, May.
- Jensen, M.C. & Murphy, K.J., 1988.
"Performance Pay And Top Management Incentives,"
88-04, Rochester, Business - Managerial Economics Research Center.
- Rajesh Aggarwal & Andrew A. Samwick, 1998.
"The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation,"
NBER Working Papers
6634, National Bureau of Economic Research, Inc.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
- Robert Gibbons & Kevin J. Murphy, 1990.
"Relative performance evaluation for chief executive officers,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 43(3), pages 30-51, February.
- Robert Gibbons & Kevin J. Murphy, 1991. "Relative Performance Evaluation for Chief Executive Officers," NBER Working Papers 2944, National Bureau of Economic Research, Inc.
- Gibbons, R. & Murphy, K.J., 1989. "Relative Performance Evaluation For Chief Executive Officers," Working papers 532, Massachusetts Institute of Technology (MIT), Department of Economics.
- Groot, Wim & Maassen van den Brink, Henriette, 2000. "Overeducation in the labor market: a meta-analysis," Economics of Education Review, Elsevier, vol. 19(2), pages 149-158, April.
- Sherwin Rosen, 1990. "Contracts and the Market for Executives," NBER Working Papers 3542, National Bureau of Economic Research, Inc.
- 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.
- Conyon, Martin J & Leech, Dennis, 1994. "Top Pay, Company Performance and Corporate Governance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 229-47, August.
- Brian J. Hall & Jeffrey B. Liebman, 1998.
"Are CEOs Really Paid Like Bureaucrats?,"
The Quarterly Journal of Economics,
MIT Press, vol. 113(3), pages 653-691, August.
- Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
- Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
- 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.
- Phillip McKnight & Cyril Tomkins, 1999. "Top Executive Pay in the United Kingdom: A Corporate Governance Dilemma," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 6(2), pages 223-243.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages F640-71, November.
- Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
- Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
- Gerald Garvey & Todd Milbourn, 2003. "Incentive Compensation When Executives Can Hedge the Market: Evidence of Relative Performance Evaluation in the Cross Section," Journal of Finance, American Finance Association, vol. 58(4), pages 1557-1582, 08.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jacqui Barton).
If references are entirely missing, you can add them using this form.