Executive Remuneration. A Comparative Overview

draft chapter for the Oxford Handbook of Corporate Law and Governance (J. Gordon and G. Ringe eds.), Oxford University Press, Forthcoming

European Corporate Governance Institute (ECGI) - Law Working Paper No. 268/2014

55 Pages Posted: 24 Oct 2014

See all articles by Guido Ferrarini

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: October 14, 2014

Abstract

In this chapter, we analyse current trends in the regulation and practice of executive remuneration. No doubt, the role of regulation in this area is on the rise, particularly after the recent financial crisis, and the standards as to pay governance and structures are spreading from the financial sector to the non-financial one. As a consequence, today’s remuneration practices are shaped not only by the need to reduce managerial agency costs at listed companies through appropriate incentives, but also by the hard and soft laws tackling corporate governance and remuneration structures. Moreover, regulation also responds to social issues and political pressures, reflecting concerns about either inequality in the distribution of wealth or incentives to undertake “excessive” risks in the financial sector. We examine, in particular, the main policy questions concerning incentive pay, including the optimal design of stock options and the importance of longterm pay. Amongst the governance mechanisms, we consider both the role of boards and independent directors, and that of shareholders under say on pay rules, taking into account the rise of shareholder engagement in listed companies across the Atlantic. We also analyse regulatory developments in Europe over the last decade and current postcrisis proposals by the Commission, comparing the same with developments at member state level and in the US. In particular, we highlight the impact of say on pay rules on shareholder activism, expanding on the role of proxy advisors and the behaviour of large institutional investors. We lastly focus on the regulation of pay structures, showing that long-term incentives are clearly favoured for both financial and non-financial companies by either regulators or institutional investors. However, financial institutions are the main target of post-crisis reforms, firstly at international level and secondly in the US and the EU, where the FSB principles have been implemented along partially diverging routes. CRD IV, in particular, has marked a new trend in the regulation of bankers’ pay, by imposing a bonus cap that we criticize from an economic perspective and which clearly goes beyond the international principles.

Keywords: Executive remuneration, corporate governance, banks, financial crisis, prudential regulation, supervision

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

Suggested Citation

Ferrarini, Guido and Ungureanu, Maria Cristina, Executive Remuneration. A Comparative Overview (October 14, 2014). draft chapter for the Oxford Handbook of Corporate Law and Governance (J. Gordon and G. Ringe eds.), Oxford University Press, Forthcoming; European Corporate Governance Institute (ECGI) - Law Working Paper No. 268/2014. Available at SSRN: https://ssrn.com/abstract=2509968

Guido Ferrarini (Contact Author)

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

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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,704
Abstract Views
4,029
rank
9,726
PlumX Metrics