The Managerial Labour Market and the Governance Role of Shareholder Control Structures in the UK

Abstract

This paper simultaneously analyses two mechanisms of managerial labour market in the UK - CEO disciplinary turnover and executive compensation schemes. It relates them to the characteristics of corporate ownership structure. Executive cash compensation and turnover proves strongly performance-sensitive. However, the impact of the CEO replacement on subsequent firm performance appears to be weak. Both market - and accounting-based performance indicators play an important role in evaluating executive's productivity. The ownership concentration per se and substantial changes of block holdings do not prove a major determinant of the CEO turnover and compensation. Still, monitoring by some types of owners strengthens governance role of the managerial labour market, while large equity stakes controlled by CEOs result in entrenchment.

Keywords: corporate governance, CEO compensation, disciplinary managerial turnover, financial performance, ownership structure

JEL Classification: G30, G32, G34, J33