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Executive Pay and Performance in the UK 1994-2002

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  • Paul Gregg
  • Sarah Jewell
  • Ian Tonks

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.

Suggested Citation

  • 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, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:05/122
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp122.pdf
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    References listed on IDEAS

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    Cited by:

    1. Habib Jouber & Hamadi Fakhfakh, 2011. "Does CEOs Performance-based Compensation Waits on Shareholders? A Cross National Analysis," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 2(3), pages 68-82, August.
    2. Akram, Farheen & Abrar ul haq, Muhammad, 2018. "Assessing the Effect of Managerial Power on Firm Performance through the Perceptual Lens of Executive Remuneration," MPRA Paper 100050, University Library of Munich, Germany, revised 2019.
    3. Smirnova, Aleksandra S. & Zavertiaeva, Marina A., 2017. "Which came first, CEO compensation or firm performance? The causality dilemma in European companies," Research in International Business and Finance, Elsevier, vol. 42(C), pages 658-673.
    4. Tomi Ovaska & Albert J. Sumell, 2014. "Who Has The Advantage? An Economic Exploration of Winning in Men's Professional Tennis," The American Economist, Sage Publications, vol. 59(1), pages 34-51, May.
    5. Liu, Lisa Shifei & Stark, Andrew W., 2009. "Relative performance evaluation in board cash compensation: UK empirical evidence," The British Accounting Review, Elsevier, vol. 41(1), pages 21-30.
    6. Alves, Paulo & Couto, Eduardo Barbosa & Francisco, Paulo Morais, 2016. "Executive pay and performance in Portuguese listed companies," Research in International Business and Finance, Elsevier, vol. 37(C), pages 184-195.
    7. Habib Jouber, 2016. "The relationship between CEO performance-based compensation and shareholders value creation: a cross national analysis," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 8(1), pages 1-22.
    8. Jay Fattorusso & Rodion Skovoroda & Trevor Buck & Alistair Bruce, 2007. "UK Executive Bonuses and Transparency — A Research Note," British Journal of Industrial Relations, London School of Economics, vol. 45(3), pages 518-536, September.
    9. Neslihan Ozkan, 2011. "CEO Compensation and Firm Performance: an Empirical Investigation of UK Panel Data," European Financial Management, European Financial Management Association, vol. 17(2), pages 260-285, March.
    10. Jerry Coakley & Stavroula Iliopoulou, 2006. "Bidder CEO and Other Executive Compensation in UK M&As," European Financial Management, European Financial Management Association, vol. 12(4), pages 609-631, September.
    11. Dan Lin & Lu Lin, 2014. "The Interplay between Director Compensation and CEO Compensation," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(2), pages 11-26.

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    More about this item

    Keywords

    Executive compensation; pay and performance;

    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 - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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