Managerial Remuneration: The Indirect Pay-for-Performance Relation

Journal of Corporate Law Studies, Vol. 2, December 2001

Posted: 12 Jan 2002

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Abstract

This article examines the relation between executive cash compensation and corporate governance in Europe. Most research performed on the pay-for-performance relation has been conducted in the United States and the United Kingdom, because the widely held nature of shareholding makes the potential agency conflict between shareholders and management most prominent. Arguably, a stronger relation between pay and corporate performance might be expected in market-oriented than in control-oriented regimes. This is not, however, the case. Instead, there is recent evidence which shows that CEO cash-based compensation in the United Kingdom (a market-oriented system) hinges more on corporate sales growth. Conversely, executive compensation in some control-oriented systems appears not to depend solely on corporate sales growth, but relies, to a large extent, on share price and accounting performance. In particular, executive directors of Spanish firms controlled by strong investor groups receive increases in cash remuneration if their companies generate increases in shareholder value. In contrast, Spanish executives' cash compensation is linked to accounting performance if the company's equity concentration is diffuse.

Keywords: corporate governance; executive pay

JEL Classification: D23, G32, J33, J44, K22

Suggested Citation

McCahery, Joseph A. and Renneboog, Luc, Managerial Remuneration: The Indirect Pay-for-Performance Relation. Journal of Corporate Law Studies, Vol. 2, December 2001, Available at SSRN: https://ssrn.com/abstract=294622

Joseph A. McCahery (Contact Author)

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

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Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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