Executive Compensation in Europe: Realized Gains from Stock-Based Pay

29 Pages Posted: 16 Oct 2018

See all articles by Patricia Kotnik

Patricia Kotnik

University of Ljubljana - Faculty of Economics

Mustafa Erdem Sakinç

The Academic-Industry Research Network

Dejan Guduraš

The Academic-Industry Research Network

Date Written: July 13, 2018

Abstract

This paper adds to the empirical evidence on the extent to which stock-based pay incentivizes and rewards European corporate executives. It shows that the actual realized gains (that is, take-home compensation) from stock-based pay of CEOs in European publicly-listed firms may be underestimated by the use of “estimated fair value” measures. The paper also documents the heterogeneity among countries in terms of the levels and components of CEO take-home pay. We base our work on a sample of 301 large, publicly-traded companies listed in the S&P Europe 350 index from 11 EU countries: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden and United Kingdom for the fiscal year 2015. Through analyzing companies’ annual reports, we have hand-collected data on various elements of compensation of the company’s CEO in 2015, including the gains that executives realize from stock-based pay. We document that on average half of the total compensation of the European CEOs in our sample is stock-based, measured by actual realized gains, with large differences among countries. Although in some European countries the majority of total compensation is stock-based, the proportions are still well below those that prevail in the United States. A comparison of the realized-gains measure of CEO compensation with the data based on fair value estimates shows that the latter underestimates the relevance of stock-based pay, in the case of some countries dramatically. Our research findings add to the existing research on CEO pay and the link between pay of EU-based corporate executives and the performance of the companies that they manage. Based on our work, we argue that realized gains measures of CEO pay should be the standard for assessing the incentives and rewards of senior corporate executives in Europe. Our research is the first step in building time series of European executive compensation that will be useful for policies concerning corporate governance and economic performance.

Keywords: Executive compensation, stock-based pay, stock options, stock awards, estimated fair value, actual realized gains, EU

JEL Classification: D22, D31, G35, J33, M41, M52

Suggested Citation

Kotnik, Patricia and Sakinç, Mustafa Erdem and Guduraš, Dejan, Executive Compensation in Europe: Realized Gains from Stock-Based Pay (July 13, 2018). Institute for New Economic Thinking Working Paper Series No. 78. Available at SSRN: https://ssrn.com/abstract=3228809 or http://dx.doi.org/10.2139/ssrn.3228809

Patricia Kotnik

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Mustafa Erdem Sakinç (Contact Author)

The Academic-Industry Research Network ( email )

12 Newport Road
Porter Square
Cambridge, MA 02140
United States

Dejan Guduraš

The Academic-Industry Research Network ( email )

12 Newport Road
Porter Square
Cambridge, MA 02140
United States

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