Law and Executive Compensation: A Cross-Country Study

10 Pages Posted: 21 Mar 2011

See all articles by Stephen H. Bryan

Stephen H. Bryan

Wake Forest University

Robert C. Nash

Wake Forest University

Ajay Patel

Wake Forest University, School of Business

Date Written: March 18, 2011


Companies outside the U.S. use substantially less equity in their compensation mix than U.S. firms. But despite this consistent cross-sectional-difference, the pattern of changes in equity-based pay of non-U.S. companies over time appears to mirror changes in the pay of U.S. companies. The authors provide persuasive evidence that features of a nation's legal environment help explain major differences in compensation structure across countries. As a general rule, companies in countries that provide greater protection of shareholder rights use larger amounts of equity-based compensation. And the equity mix also tends to be higher when a country's legal system ensures strict enforcement of the laws that are on the books. At the same time, since the equity mix varies considerably over time within the same legal environment, it is clear that factors other than the legal environment affect compensation structure. The authors report that, after controlling for legal factors, company-specific variables that proxy for agency-conflicts not only between managers and shareholders, but between controlling and minority shareholders as well also affect the compensation mix in fairly predictable ways. The bottom line of this study is that, although we may have a global market for talent, compensation structures across countries are not likely to converge unless and until the underlying legal protections afforded shareholders converge. At the same time, the effect of agency costs in compensation design for non-U.S. firms appears to be partly conditioned by the nation's legal system and the entire set of regulatory and other institutions that are affected by it.

Suggested Citation

Bryan, Stephen H. and Nash, Robert C. and Patel, Ajay, Law and Executive Compensation: A Cross-Country Study (March 18, 2011). Journal of Applied Corporate Finance, Vol. 23, No. 1, pp. 84-91, 2011. Available at SSRN: or

Stephen H. Bryan (Contact Author)

Wake Forest University ( email )

7659 Reynolda Station
Winston-Salem, NC 27106
United States
336-758-3671 (Phone)

Robert C. Nash

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

Ajay Patel

Wake Forest University, School of Business ( email )

1834 Wake Forest Road
Building 60, Farrell Hall
Winston-Salem, NC 27106
United States
336-758-5575 (Phone)
336-758-4514 (Fax)

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