Executive Remuneration and Corporate Divestment: Motivating Managers to Make Unpalatable Decisions

Michelle Haynes, Steve Thompson and Mike Wright

Journal of Business Finance & Accounting, 2007, vol. 34, issue 5‐6, 792-818

Abstract: Abstract: This study examines the impact of voluntary divestment on executive remuneration, using an unbalanced panel of 107 UK quoted companies over the period 1988 to 1993. It employs a dynamic compensation equation, with a vector of controls and alternative specifications of the divestment effect. The results show no general direct evidence of a remuneration process that rewards managers for downsizing their firms. Indeed the substantial pay‐size elasticity implies the reverse. However, divestment does have a positive and significant effect in raising executive remuneration under a regime of strong corporate governance, defined in terms of the presence of a substantial blockholder.

Date: 2007
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