Total Board Compensation, Governance and Performance of Spanish Listed Companies

Abstract

In this paper we present empirical evidence on the relationship between board remuneration of a sample of large Spanish companies and a set of explanatory variables such as performance and size of the company. The objective is to provide additional empirical evidence based on the agency theory for the Spanish institutional context, which differs from most 'Anglo-Saxon' model studies. We focus on the impact of a company's governance structure on the relationship between pay and performance. Specifically, we consider ownership concentration and firm leverage as key determinants of the board -shareholders relationship. Our results confirm the positive relationship between board remuneration and company performance, which is stronger for book values than for stock market measures. Industry performance also explains the remuneration and provides useful information for evaluating board behaviour. Company size is also related to board remuneration and affects the payperformance relationship, although it is not relevant when we use an elasticity approach. Finally, the governance structure of companies is relevant when explaining the power of the compensation -performance relationship, and LABOUR 17 (1) 103-126 (2003) JEL G3, J33# 2003 CEIS, Fondazione

The Impact of Executive Payment on Firm Performance of the Financial Enterprises in China

“…Crespi-Cladera and Gispert (2003) also demonstrate a model to express this situation: Y = f (ҽ, ɛ). In this function, Y stands for firm performance, influenced by managerial effort (ҽ) and a set of variables (ɛ).…”

“…Among them, agency theory has often used by empirical researchers (e.g., Gomez-Meji et al 2005, Mengistae and Xu 2002, Firth et al 2006, Doucouliagos et al 2007, Crespi-Cladera and Gispert 2003. According to its doctrines, the problem of information asymmetry between owners and their agents always arise due to the separation between ownership and control.…”

Directors' Remuneration and Performance in Australian Banking

“…Empirical researchers tend to rely upon the theory of managerial compensation derived from agency theory and draw upon the principal‐agent relationship (Dogan and Smyth 2002; Crespi‐Cladera and Gispert 2003). According to agency theory, the aim of compensation contracts is to reward managers in such a way that they strive to maximise firm performance and shareholders' wealth.…”

“…where ln is the natural logarithm, e is managerial effort and Z is a vector of variables other than performance that influence earnings. Crespi‐Cladera and Gispert (2003) note that the principal‐agent model can be represented as:…”

“…For example, Dogan and Smyth (2002) found no association between board remuneration and firm performance in publicly listed Malaysian companies. Crespi‐Cladera and Gispert (2003) established a positive relationship between changes in company performance and board remuneration within Spanish listed companies 6…”