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Executive Remuneration in the EU: The Context for Reform

37 Pages Posted: 4 May 2005  

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Niamh Moloney

London School of Economics - Law Department; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

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

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

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Niamh Moloney

London School of Economics - Law Department ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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