Directors' Remuneration Before and after the Crisis: Measuring the Impact of Reforms in Europe

Boards and Shareholders in European Listed Companies. Facts, Context and Post-Crisis Reforms (editors Massimo Belcredi and Guido Ferrarini), Cambridge University Press, 2013

Version presented at the 23rd Annual Meeting of the American Law and Economics Association, May 2013

54 Pages Posted: 15 Apr 2013 Last revised: 2 Sep 2014

See all articles by Roberto Barontini

Roberto Barontini

Scuola Superiore Sant'Anna di Pisa - Institute of Management

Stefano Bozzi

Università Cattolica del Sacro Cuore di Milano

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Maria Cristina Ungureanu

Sodali; Genoa Centre for Law and Finance, University of Genoa; European Corporate Governance Institute (ECGI)

Date Written: January 2013

Abstract

In this paper we measure the impact of recent reforms on directors’ remuneration by comparing the remuneration practices at large European listed companies before and after the financial crisis. We analyse the data concerning directors’ remuneration at FTSE Eurofirst 300 Index companies and assess to what extent the changes occurred between 2007 and 2010 reflect the economic crisis determined by the 2008 financial turmoil and the remuneration reforms generated by the same. Our analysis reveals that country-specific characteristics such as corporate governance, firm ownership, and the nature and quality of the legal system still have a relevant impact on the level and structure of directors’ pay.

Section I briefly connects our work with previous studies in this area, while section II introduces some core aspects of recent EU and national reforms. In section III, we analyse the data concerning remuneration governance and disclosure, and show that all firms have experienced improvements. However, variations persist reflecting national regulations and practices. Moreover, companies with more dispersed ownership tend to comply better with remuneration governance and disclosure requirements. Our data confirm and extend to Europe theoretical predictions and previous country-specific empirical evidence about the impact of ownership concentration on remuneration governance and disclosure. In section IV, we analyse pay structure and levels. We measure the level of total compensation, the variable component including the estimated value of annual stock grants and stock options. The evolution of total compensation between 2007 and 2010 reveals that pay practices are permeable to the effect of the financial crisis. Board total compensation decreases in most European countries. However, significant differences emerge between financial and non-financial companies, with board compensation at financial firms decreasing rather significantly, while non-financial firms experience less relevant changes. Also the CEO compensation level and structure significantly changed in 2010 relative to 2007, mainly as a result of the reduction in variable cash compensation. This is partly due to the negative performance of firms in 2010. However, our results show that these changes may be also related to other factors, in particular the regulatory pressure on financial firms in the relevant period. Indeed, several items in the pay structure of financial firms go in the direction indicated by regulators, i.e. better focus on the risk implications of pay, appropriate balance between variable and fixed compensation, and a substantial portion of variable compensation awarded in shares or share-linked instruments. Section V concludes by advancing some policy suggestions.

Keywords: Executive remuneration, corporate governance, disclosure, say on pay, bankers pay, financial crisis, Financial Stability Board, Capital Requirements Directive, prudential regulation

JEL Classification: G20, G21, G28, G30, G32, G34, G38, K22, K31, M12

Suggested Citation

Barontini, Roberto and Bozzi, Stefano and Ferrarini, Guido and Ungureanu, Maria Cristina, Directors' Remuneration Before and after the Crisis: Measuring the Impact of Reforms in Europe (January 2013). Boards and Shareholders in European Listed Companies. Facts, Context and Post-Crisis Reforms (editors Massimo Belcredi and Guido Ferrarini), Cambridge University Press, 2013 . Available at SSRN: https://ssrn.com/abstract=2250677

Roberto Barontini

Scuola Superiore Sant'Anna di Pisa - Institute of Management ( email )

Piazza Martiri della Libertà, 24
Pisa, Pisa 56124
Italy
++39 050 883.111 (Phone)

Stefano Bozzi

Università Cattolica del Sacro Cuore di Milano ( email )

20123 Milano
Italy
+39 02 7234.2436 (Phone)
+39 02 7234.2406 (Fax)

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

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

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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

Maria Cristina Ungureanu (Contact Author)

Sodali ( email )

9 West 57th Street
26th Floor
New York, NY 10019
United States

Genoa Centre for Law and Finance, University of Genoa ( email )

Genova
Italy

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

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
Brussels, B-1050
Belgium

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

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