The Impact of Corporate Governance Reforms on the Remuneration of Executives in the UK

Abstract

Corporate governance reforms have been motivated to a considerable degree by concerns about the possible malfunctioning of the executive remuneration determination process in large firms. It is not clear, however, how effective these reforms have been in altering pay-setting procedures in the direction of aligning executive and shareholder interests. This paper reviews some initial evidence and suggests that a mixed picture emerges. It appears that reforms have been more successful in reducing executive tenure - and hence pay-offs in the event of failure - than they have been in linking rewards to performance for continuing executives. It is clear, however, that reforms have facilitated the role for institutional shareholders in approving remuneration packages.