Executive Directors, Pay Disclosures, and Incentive Compensation in Large European Companies

50 Pages Posted: 6 Oct 2003 Last revised: 15 Oct 2013

See all articles by Volkan Muslu

Volkan Muslu

C.T. Bauer College of Business University of Houston

Date Written: May 1, 2010

Abstract

Using a proprietary database for the largest 158 European companies during 1999-2004, I find that transparency of executive pay disclosures and sensitivity of executive pay to performance increase with the proportion of top executives serving as company directors and with dual CEO/board chairs. These relations strengthen in countries with more protection for outside shareholders. The positive marginal effects of executive directors (i.e., insiders) on transparency of pay disclosures and sensitivity of pay to performance are not significant when i) insiders already have the numerical majority on boards, ii) CEOs are board chairs, and iii) pay levels and company ownership of executives are relatively high. Overall, the evidence supports the optimal-contracting argument over the rent-seeking argument. Specifically, companies mitigate agency costs associated with the existence of company executives on boards through transparent pay disclosures and incentive compensation. However, such actions are limited to companies with strong country-level investor protection and significant representation of independent directors on company boards.

Keywords: International corporate governance, executive compensation, board of directors, company disclosure

JEL Classification: G34, G30, J33, M52

Suggested Citation

Muslu, Volkan, Executive Directors, Pay Disclosures, and Incentive Compensation in Large European Companies (May 1, 2010). Journal of Accounting, Auditing and Finance 25, 2010. Available at SSRN: https://ssrn.com/abstract=434820 or http://dx.doi.org/10.2139/ssrn.434820

Volkan Muslu (Contact Author)

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

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