Executive Compensation in Europe: Realized Gains from Stock-Based Pay

Abstract

This paper adds to the empirical evidence on the extent to which stock-based pay incentivizes and rewards European corporate executives. It shows that the actual realized gains (that is, take-home compensation) from stock-based pay of CEOs in European publicly-listed firms may be underestimated by the use of "estimated fair value" measures. The paper also documents the heterogeneity among countries in terms of the levels and components of CEO take-home pay. We base our work on a sample of 301 large, publicly-traded companies listed in the S&P Europe 350 index from 11 EU countries: and United Kingdom for the fiscal year 2015. Through analyzing companies' annual reports, we have hand-collected data on various elements of compensation of the company's CEO in 2015, including the gains that executives realize from stock-based pay. We document that on average half of the total compensation of the European CEOs in our sample is stock-based, measured by actual realized gains, with large differences among countries. Although in some European countries the majority of total compensation is stock-based, the proportions are still well below those that prevail in the 1 United States. A comparison of the realized-gains measure of CEO compensation with the data based on fair value estimates shows that the latter underestimates the relevance of stockbased pay, in the case of some countries dramatically. Our research findings add to the existing research on CEO pay and the link between pay of EU-based corporate executives and the performance of the companies that they manage. Based on our work, we argue that realized gains measures of CEO pay should be the standard for assessing the incentives and rewards of senior corporate executives in Europe. Our research is the first step in building time series of European executive compensation that will be useful for policies concerning corporate governance and economic performance.

Comparative Analysis of Executive Compensation in the Republic of Serbia and EU Countries

“…Global economic crisis has strongly influenced national economies and the world economy, and left a strong impact on EU countries, accompanied by employment restrictions and reduction in working hours. The recession has also led to astricter control of executive compensations, which implied new legislation (Kotnik et al, 2017). A few years after the global economic crisis outbreak, in 2012, EU business organizations conducted salary freezing, including primarily managers' salaries, and taxing higher levels of material rewards (Mercer, 2013).…”

“…A few years after the global economic crisis outbreak, in 2012, EU business organizations conducted salary freezing, including primarily managers' salaries, and taxing higher levels of material rewards (Mercer, 2013). Deferred incentive payments have been introduced in most EU countries since the beginning of 2011, due to a new EU regulations regarding the capital level for credit and investment institutions, which covers 43% of business organizations (Kotnik et al, 2017).…”

“…The paper analyses executive compensation models, their structure and levels, in EU countries: United Kingdom, Germany, other EU countries and the Republic of Serbia.The comparative criterion with those countries of the European Union is the amount of overall executive compensation. According to the conducted research (Kotnik et al, 2017) managers in the UK and Germany make the highest compensations compared to other EU countries. The selected EU countries also have the highest ratio between executive compensations and compensation of other employees (Kotnik et al, 2017).…”

“…According to the conducted research (Kotnik et al, 2017) managers in the UK and Germany make the highest compensations compared to other EU countries. The selected EU countries also have the highest ratio between executive compensations and compensation of other employees (Kotnik et al, 2017). The survey conducted in 2015 (Equilar, 2016) also confirmed that within the EU, the highest level of compensation is earned by managers in the United Kingdom and Germany.…”

CEO Compensation Trends in the Republic of Serbia in the Context of EU Integration

“…In this regard, the applied models of CEO compensations are considered, as well as their basic components, the comparison of the observed sample of countries is carried out, as well as the adequate modeling of CEO compensations in order to achieve and maintain the competitive advantage in the global market. According to the conducted research (Kotnik et al 2017) EU managers (especially in the UK, Germany and France) make the highest compensations. The EU countries also have the highest ratio between CEO compensations and compensation of other employees (Kotnik et al 2017).…”