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Independent Directors, Executive Remuneration and the Governance of the Corporation: Some Empirical Evidence from the United Kingdom

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  • Johnston, James

Abstract

One aspect of the study of executive remuneration that has received comparatively little attention is its ability to shed light on the governance of the corporation. The level of a Chief Executive Officer’s remuneration will embody information on both the market within which a business operates and the effectiveness of its independent directors as instruments of corporate governance. Differences in the salaries of top directors that cannot be accounted for by differences in business performance may provide useful evidence on the health of a company’s governance mechanisms. This paper contains the results of an empirical investigation into the role of external competition and internal controls in generating the executive salaries that we observe in the United Kingdom’s leading firms. It also considers whether compliance with the corporate structures prescribed by external committees is likely to curtail some of the excesses seen in the past.

Suggested Citation

  • Johnston, James, 2007. "Independent Directors, Executive Remuneration and the Governance of the Corporation: Some Empirical Evidence from the United Kingdom," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 3(01-2), pages 1-18.
    • Handle: RePEc:ags:reapec:50160
    DOI: 10.22004/ag.econ.50160
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