Pay Regulation – Is More Better?

Accounting and Business Research, Forthcoming

Posted: 12 Oct 2020

See all articles by Jenny Chu

Jenny Chu

University of Cambridge - Judge Business School

Aditi Gupta

King's Business School

Gilad Livne

University of Exeter Business School

Date Written: August 24, 2020

Abstract

From October 2013, UK law and regulations (the Reform) require periodic binding shareholders’ approval of executive directors’ remuneration policy, as well as enhanced disclosure in remuneration reports. These requirements supplement an ongoing requirement for an annual non-binding vote on compensation outcomes that are detailed in the remuneration report. Using a large sample of listed companies from 2010–2017 we investigate whether the Reform has affected pay levels, pay-performance sensitivity, the pay gap between the CEO and other employees, the amount of cash returned to shareholders, and dissent voting on the remuneration report. We find little evidence that the Reform has affected these variables in our sample firms. Using market-based tests we find that market participants anticipated an improvement in corporate governance for some key dates before the Reform came into force. Taken together, the paper’s evidence suggests the Reform has not met its stated objectives.

Keywords: Remuneration Reporting, Governance Disclosure, Executive Remuneration, Pay-performance Sensitivity, Corporate Governance, Binding Say on Pay

JEL Classification: F02, G32, G34, G38, K22

Suggested Citation

Chu, Jenny and Gupta, Aditi and Livne, Gilad, Pay Regulation – Is More Better? (August 24, 2020). Accounting and Business Research, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3679922

Jenny Chu

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Aditi Gupta (Contact Author)

King's Business School ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom

Gilad Livne

University of Exeter Business School ( email )

Streatham Court
Rennes Drive
Exeter, EX4 4JH
United Kingdom
+44(0)1392 724436 (Phone)

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