Equity-Based Compensation in New and Old Economy UK Firms

Abstract

We examine competing agency theory and managerial power hypotheses on the role of Equity-Based Compensation (EBC) in the UK. Our study covers a unique sample of some 61 old and new economy firms over the 1997-2001 period. Despite the fact that new economy firms award much higher levels of EBC as compared with old economy firms, we find no evidence that such awards influence company performance in either sector of the economy. Our study also indicates that loss of office compensation payments have detrimental effects on the incentive-alignment power of EBC. These are novel finding for the UK and they are consistent with the managerial power view of EBC.

Keywords: Managerial Compensation, Agency problems, ownership and control, Executive stock options

JEL Classification: G32, G35, J33