Top Executive Remuneration: A View from Europe*

Abstract

 We argue that the dominance of principal-agent theory as an approach to investigating executive pay has led to an overly narrow focus which may be unhelpful when considering cross-country differences and probably also hinders within-country analysis. The paper discusses the interlinked nature of three available theoretical lenses, namely principal-agent, executive power, and stewardship/stakeholder theories. It argues that institutional theory can provide a useful overarching framework within which appropriate variants of these approaches can be deployed to better comprehend developments in executive pay. We illustrate our approach with a discussion of executive pay in the UK and in Germany.

The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

“…The lack of a relationship between executive director remuneration and company size, as well as between executive director remuneration and profitability, speaks to the results of studies by Bruce et al (2005), Bussin and Nel (2015), Duffhues and Kabir (2008), Jensen and Murphy (2010), Meeks and Whittington (1975) and Walker (2010). However, the results are in line with the results of Bussin and Blair (2015), Conyon (1997), Conyon et al (2000), Coughlan and Schmidt (1985), Fatemi et al (2003), Gabaix and Landier (2008), Kato et al (2007), Masson (1971), Murphy (1985) and Scholtz and Smit (2013).…”

“…However, many failed to produce conclusive results and consensus (Bruce, Buck & Main 2005;Bussin & Blair 2015). Some of these papers include those by Cosh (1975), Hirschey and Pappas (1981), Lewellen and Huntsman (1970), Masson (1971) and Meeks and Whittington (1975).…”

Corporate governance and national institutions: A review and emerging research agenda

“…As Bruce et al (2005Bruce et al ( : 1493 indicate, "In recent years, literature on executive remuneration has grown at a pace rivaled only by the growth of executive pay itself." Most agency theoretical research assumes that pay systems aligning the incentives of managers with those of shareholders will help firms operate more efficiently and perform better.…”

“…Comparative research has stressed the weaker effects of equity-based incentives in the UK and Germany (Bruce et al, 2005) or the absence of a link between high pay for performance sensitivity in executive pay and financial performance in Japan (Kubo, 2005). Crossnationally comparative research has therefore also further sensitized researchers to how different sets of institutions modify the basic principal-agent relationship by providing different sets of incentives, resources, and understandings of corporate governance.…”

“…Here the efficiency of various corporate governance mechanisms is studied from the perspective of shareholders, who invest resources and seek maximum return on their investment. This approach has emphasized the role of self-interested opportunism and "arm's-length" contracting between shareholders and managers (Bruce, Buck, & Main, 2005). For example, well-designed incentive schemes should increase corporate productivity and value by better aligning top managers' interests with those of shareholders (Hall, 2003).…”