Executive Pay and Performance in the UK 1994-2002

Paul Gregg, Sarah Jewell and Ian Tonks

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: This paper examines the relationship between executive cash compensation and company performance for a sample of large UK companies over the period 1994-2002. This relationship is examined against a background of a series of reports into corporate governance mechanisms in UK companies. We show that base pay compensation of UK executives has increased substantially over this period, and we provide evidence on the movement in the pay-performance sensitivity over time. We identify an asymmetric relationship between pay and performance: in years and for companies in which stock returns are relatively high, pay-performance elasticities are high, but we find that executive pay is less sensitive to performance in those cases when stock returns are low. This suggests that overall there is little relationship between pay and performance. We also explore the heterogeneity of the pay-performance relationship across firms, and find that board structure, firm size, industry and firm risk are all significant determinants of executive compensation.

Keywords: Executive compensation; pay and performance (search for similar items in EconPapers)
JEL-codes: G34 J33 M52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-06
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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