On directors’ compensation: a multilevel analysis of Spanish listed companies

Abstract

This study analyzes the determinants of the annual compensation of directors belonging to the boards of the Spanish companies that constitute the IBEX 35 stock index. We investigate the importance of observed and unobserved heterogeneity in explaining director compensation. Based on a three-level mixed effect model, our analysis includes time-invariant random effects at company and manager level as determinants of director pay. We find that company effects explain 30% of the variation in director pay, while company and director effects taken together explain 77% of that variation. Our findings suggest that the characteristics of the company, in terms of activity sector, size and financial performance, and the professional attributes of the director (especially the role within the board), influence the compensation received. In addition, some directors and companies show random effects (either positive or negative) that significantly separate them from the expected compensation estimated from the fixed part of the model.

Determinants of Remuneration Committee Chairman’s Pay: Evidence from the UK

“…For example, (Carretta et al 2006;Marchetti and Stefanelli 2009;Mallin et al 2015;Goh and Gupta 2016;Fedaseyeu et al 2018) found that age is significantly positively related to compensation, but with a small economic magnitude. Núñez et al (2022) also found that the age of the director has a positive effect on the compensation level up to 58 years, thereafter, the relationship turns negative. Thus, I expect RCC's age to be positively associated with their remuneration.…”

“…Fedaseyeu et al (2018) found that the outside directors' remuneration was tied to the skills and experiences for a large sample of US-listed firms (1777 firm-year observations; 13,239 director-year observations) between 2006 and 2010; their results showed that more qualified directors perform more board functions and thus receive higher pay. Núñez et al (2022) found that professional and personal attributes were the main determinants of directors' compensation for Spanish-listed companies IBEX 35 (1458 firm-year observations; 531 director-year observations) during the period 2015-2017 (in terms of the position category on the board, gender, age talent attributes, and the seniority in the company on the board).…”

“…The increased difficulty and complexity of the firm suggest that RCCs would be expected to commit a greater amount of effort and time to managing the setting of efficient compensation arrangements (Al-Okaily et al 2022;Al-Okaily et al 2023). The relevant literature usually observed a positive association with firm size (Hempel and Fay 1994;Boyd 1994;Cordeiro et al 2000;Brenner and Schwalbach 2003;Ryan and Wiggins 2004;Linn and Park 2005;Brick et al 2006;Farrell et al 2008;Marchetti and Stefanelli 2009;Shiyyab et al 2014;Bugeja et al 2016;Núñez et al 2022).…”

“…The remuneration of non-executive directors and individuals' characteristics have attracted a recent line of research (Carretta et al 2006;Marchetti and Stefanelli 2009;Mallin et al 2015;Goh and Gupta 2016;Fedaseyeu et al 2018;Núñez et al 2022). These results have confirmed the influence of the non-executive directors' attributes and the remuneration they received.…”

Do (some of) the tax savings derived from Profit-Shifting go to increase the compensation of the board of directors?

“…compensation depends mainly on rm-level variables, while executive directors' compensation depends more on director-level variables Nuñez et al (2022). obtains that the effect of the company and director characteristics taken together explain 77% of the compensation of directors belonging to the Spanish Ibex-35 stock index and that there are some random effects that separate some directors from the expected remuneration derived from the xed part of the model.…”