37 Pages Posted: 4 May 2005
Date Written: April 2005
This paper shows how clear divergences arise across the EU in how executive remuneration is structured. Sharp differences also occur in the adoption of best practices in pay-setting and in the disclosure of executive pay. These divergences are broadly in line, as agency theory predicts, with block-holding and dispersed ownership governance profiles. While the EU has recently adopted two important 2004 Recommendations on executive pay, the paper argues that EU-led reforms should be undertaken with care. Harmonization should be limited and only address disclosure. Disclosure is central to the adoption of effective incentive contracts in that it can manage the particular agency costs of executive pay, across dispersed and blockholding systems, without intervening in governance choices and structures. Any other interventions in the pay process carry the risk of distorting competition and interfering with the dynamics of different ownership structures and economic contexts.
Keywords: executive remuneration, disclosure, ownership structure, corporate governance
JEL Classification: G3, J33, K22
Suggested Citation: Suggested Citation
Ferrarini, Guido and Moloney, Niamh, Executive Remuneration in the EU: The Context for Reform (April 2005). ECGI - Law Working Paper No. 32/2005. Available at SSRN: https://ssrn.com/abstract=715862 or http://dx.doi.org/10.2139/ssrn.715862
By Kevin Murphy