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The Impact of Mergers and Acquisitions on Executive Pay in the United Kingdom

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  • PAUL M. GUEST

Abstract

This paper examines the impact of acquisitions by UK acquirers on executive pay. The overall sample shows a significant transitory pay increase. Pay changes are not affected by target nationality or organizational form, although initial cross‐border acquisitions result in higher pay. Pay increases are higher following acquisitions of targets with high pay, but not high‐pay countries. CEOs are rewarded equally for bad and good acquisitions, and those well rewarded are more likely to re‐acquire. However, bad acquisitions do not increase CEO wealth because CEO shareholding value declines. Pay impacts are not affected by the acquiring firms' strength of corporate governance.

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  • Paul M. Guest, 2009. "The Impact of Mergers and Acquisitions on Executive Pay in the United Kingdom," Economica, London School of Economics and Political Science, vol. 76(301), pages 149-175, February.
    • Handle: RePEc:bla:econom:v:76:y:2009:i:301:p:149-175
    DOI: 10.1111/j.1468-0335.2007.00674.x
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    Cited by:

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    2. Birhanu, Addis Gedefaw & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    3. Chandra S. Mishra, 2020. "Frequent acquirers and management compensation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 661-694, July.
    4. Kräkel, Matthias & Müller, Daniel, 2015. "Merger efficiency and managerial incentives," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 51-63.
    5. James A. Brander & Edward J. Egan & Sophie Endl, 2021. "Comparing CEO Compensation Effects of Public and Private Acquisitions," JRFM, MDPI, vol. 14(4), pages 1-19, April.
    6. Amewu, Godfred & Alagidede, Paul, 2019. "Mergers and executive compensation changes: Evidence from African markets," Research in International Business and Finance, Elsevier, vol. 48(C), pages 397-419.
    7. Andy Cosh & Paul Guest & Alan Hughes, 2007. "UK Corporate Governance and Takeover Performance," Working Papers wp357, Centre for Business Research, University of Cambridge.
    8. Schmid, Stefan & Altfeld, Frederic & Dauth, Tobias, 2018. "Americanization as a driver of CEO pay in Europe: The moderating role of CEO power," Journal of World Business, Elsevier, vol. 53(4), pages 433-451.
    9. Swarnodeep HomRoy, 2015. "Are CEOs Replaced For Poor Performance? Effects of Takeovers and Governance on CEO Turnover," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(2), pages 149-170, May.
    10. David R. King & Olimpia Meglio & Luis Gomez‐Mejia & Florian Bauer & Alfredo De Massis, 2022. "Family Business Restructuring: A Review and Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 59(1), pages 197-235, January.
    11. Ozkan, Neslihan, 2012. "Do CEOs gain more in foreign acquisitions than domestic acquisitions?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1122-1138.
    12. Kräkel, Matthias & Müller, Daniel, 2014. "Merger Performance and Managerial Incentives," Bonn Econ Discussion Papers 02/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    13. Godfred Amewu & Imhotep Paul Alagidede, 2021. "Mergers, executive compensation and firm performance: The case of Africa," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 407-436, March.
    14. Swarnodeep Homroy, 2014. "Pay increase may not be a strong incentive for undertaking acquisitions," Working Papers 66910750, Lancaster University Management School, Economics Department.
    15. Jongmoo Jay Choi & Omer F. Genc & Ming Ju, 2020. "Is an M&A self‐dealing? Evidence on international and domestic acquisitions and CEO compensation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1290-1315, October.
    16. Reinhard Meckl & Falk Röhrle, 2016. "Do M&A deals create or destroy value? A meta-analysis," European Journal of Business and Economics, Central Bohemia University, vol. 11(2), pages 8901:11-890, June.
    17. Hristos Doucouliagos & Janto Haman & T.D. Stanley, 2012. "Pay for Performance and Corporate Governance Reform," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 670-703, July.
    18. Birhanu, Addis & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Other publications TiSEM 6c1d41ae-5e2a-4868-b1af-1, Tilburg University, School of Economics and Management.
    19. Kräkel, Matthias & Müller, Daniel, 2013. "Bad Mergers Revisited: An Incentive Perspective," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79914, Verein für Socialpolitik / German Economic Association.
    20. Agyei-Boapeah, Henry & Ntim, Collins G. & Fosu, Samuel, 2019. "Governance structures and the compensation of powerful corporate leaders in financial firms during M&As," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 37(C).

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    More about this item

    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

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