Determinants of CEO compensation in the FTSE100 constituent firms

Abstract

The main objective of this paper is to examine the determinants of CEO compensation in the UK public listed companies. Our analysis, based on the sample drawn from the FTSE100 constituent firms, suggest that firm financial performance measured by return of assets (ROA), influence CEO compensation with the impact being most pronounced for the CEO total compensation. Results further suggest that corporate governance characteristics such as board size and CEO role duality have direct implications for CEO compensation. These attributes, however, differentially determine the various components of CEO compensation. Although the results of this research help to elucidate the importance of corporate outcomes, board attributes and CEO traits in explaining the determinants of CEO compensation in the UK public listed companies, these findings have important economic implications for the corporate sector, regulators, investors, market analysts, academics and the public, which extend beyond the UK market.

How Much Does the Board Composition Matter? The Impact of Board Gender Diversity on CEO Compensation

“…Ref. [19], for instance, argues that in controlled organization the size of the company can predict the total salary, bonus, and basic salary of CEOs; thus, firm size is an important determinant of CEO compensation. Firm complexity increases as the company grows in size; therefore, large and complex organizations require executives with higher expertise to manage their complex business structures and operations.…”

“…Similarly, ref. [19] reports that the total compensation of family member CEOs of family holding companies is lower than that of external CEOs.…”