UK Executive Compensation Practices: New Economy vs. Old Economy

Posted: 18 Jan 2005

See all articles by Susanne Espenlaub

Susanne Espenlaub

University of Manchester - Division of Accounting and Finance

Martin Walker

University of Manchester - Manchester Business School

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

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Abstract

This paper examines the executive compensation practices of listed U.K. retailing companies. We compare New Economy retailers (e-commerce/dot.coms) to more traditional retailers operating in the Old Economy. We also discriminate between recently floated retailers and their more seasoned counterparts. Using a sample of remuneration contracts for 549 directors in 72 listed U.K. companies in the New and Old Economy, we investigate the structure and level of executive (and non-executive) compensation defined as the sum of salary, annual bonus, and the values of executive stock options and long-term incentive plans (LTIPs). We investigate the extent to which the contract features are determined by firm characteristics, economic sector, and governance/ownership factors. In contrast to the U.S., where almost all executive stock options are issued at the money, there is a greater variety of practice in the U.K. with some options being granted substantially in the money. We, therefore, pay special attention to this U.K. institutional feature by producing a model designed to explain the cross-sectional variation in the moneyness of stock options at the date of issue. We also examine the determinants of a number of other contract features. These are: the time to maturity of the executive stock options, the leverage of the compensation package, the ratio of long-term pay relative to short-term pay, and pay performance sensitivity. We find that differences in compensation arrangements can be explained to a significant extent by differences in firm size, growth/growth opportunities, firm financial policy, ownership characteristics, and governance arrangements. We also find some systematic differences between the compensation arrangements of CEOs and other executives.

Keywords: Managerial compensation, remuneration committee, executive stock options, new economy

JEL Classification: G30, G34, J33

Suggested Citation

Espenlaub, Susanne K. and Walker, Martin and Stathopoulos, Konstantinos, UK Executive Compensation Practices: New Economy vs. Old Economy. Available at SSRN: https://ssrn.com/abstract=650121

Susanne K. Espenlaub

University of Manchester - Division of Accounting and Finance ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom
44 161 275 4026 (Phone)

Martin Walker (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

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