Determinants of director compensation in two-tier systems: evidence from German panel data

Abstract

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The remuneration of independent directors in the UK and Italy: An empirical analysis based on agency theory

“…Those studies have mainly focused on the adoption of performance-based remuneration to reduce the potentially misaligned interest between shareholders and INEDs (e.g., Hempel and Fay, 1994;Boyd, 1996;Bryan, Hwang, Klein & Lilien , 2000;Cordeiro et al, 2000) or the adoption of meeting fees to provide INEDs with an incentive to exert more effort (Hempel and Fay 1994;Bryan et al 2000;Brick, Palmon & Waldet, 2006;Farrell, Friesen & Hersch, 2008;Adams and Ferreira 2008). A more comprehensive agency theory framework was adopted by Cordeiro et al (2000), Andreas et al (2012) and Marchetti & Stefanelli (2009). These studies still rely on an optimal contracting perspective of agency theory, but consider not only firm performance and meeting fees as potential determinants of INEDs' remuneration but also INEDs' roles within the board and firm complexity.…”

“…As firm size (Hempel & Fay, 1994;Boyd, 1996;Marchetti & Stefanelli, 2009;Andreas et al, 2012) and industry (Ely, 1991) are likely to affect directors' remuneration, the sample was selected so that UK and Italian firms were not significantly different from each other in terms of industry and size. By using a stratified random procedure the population is first divided into a number of parts or strata according to some characteristics, chosen to be related to the major variables being studied.…”

“…Following previous studies (e.g., Marchetti & Stefanelli, 2009, Andreas et al 2012, our dependent variable (Remuneration) is the natural logarithm of the total remuneration received by an INED during a financial year ( 2 ), measured as the sum of total fees and performance-related pay ( 3 ) (used by some companies although not recognised as best practice).…”

“…Larger firms are likely to be characterized by more complex activities with larger stakes involved (Bryan et al, 2000;Brick et al, 2006;Andreas et al, 2012). …”

“…First, it provides new insights on the determinants of INEDs' remuneration, in particular the criteria by which INEDs are remunerated, which is an important issue given the potential for agency problems between boards of directors and shareholders (Bebchuk et al, 2002;Certo et al, 2008;Andreas, Rapp & Wolff, 2012). In particular, by analysing the influence played by INEDs' observable effort/responsibilities and/or the conflicts of interest in their remuneration in Europe, we extend the scant literature which is mainly focused on the debate in North America on whether the pay-for-performance principles for rewarding executive directors are applicable to…”