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Merger Activity and Executive Pay

Author

Listed:
  • Girma, Sourafel

    (University of Nottingham)

  • Steve Thompson

    (University of Leicester)

  • Peter Wright

Abstract

This paper examines the impact of mergers and acquisitions on the remuneration of the CEOs in a large unbalanced panel of UK firms, over the period 1981-1996. We find significant and substantial executive pay increases in excess of those generated by the growth in firm size consequent upon the merger. This is consistent with the view that mergers reveal information about the quality of management that is useful to the firm's remuneration committee. However, executive pay is nine times more sensitive to internal growth than to growth as a result of acquisition. Furthermore, there is some evidence that hostile transactions generate smaller pay effects than friendly deals, probably because they are followed, at some remove, by size-reducing divestments. When mergers are distinguished by their impact on shareholder wealth we find that CEOs engaging in 'bad' (ie wealth-reducing) acquisitions experience significantly lower remuneration than their counterparts whose deals meet with market approval. This result suggests that shareholder-principals have at least some success in penalising managers for unwarranted empire-building mergers.

Suggested Citation

  • Girma, Sourafel & Steve Thompson & Peter Wright, 2002. "Merger Activity and Executive Pay," Royal Economic Society Annual Conference 2002 87, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:87
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    Cited by:

    1. Renneboog, L.D.R. & Trojanowski, G., 2002. "The Managerial Labor Market and the Governance Role of Shareholder Control Structures in the UK," Other publications TiSEM aee04553-20a7-475a-96e1-7, Tilburg University, School of Economics and Management.
    2. Steve Thompson, 2005. "The Impact of Corporate Governance Reforms on the Remuneration of Executives in the UK," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(1), pages 19-25, January.
    3. Amzaleg, Yaron & Azar, Ofer H. & Ben-Zion, Uri & Rosenfeld, Ahron, 2014. "CEO control, corporate performance and pay-performance sensitivity," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 166-174.

    More about this item

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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