Brian G. M. Main

Top Executive Pay: Tournament or Teamwork?

Tournament mechanisms suggest the need for ever larger rewards to motivate those at the highest organizational levels. But arguments for the efficiency of executive pay compression have also been made. This study reports the results of an empirical investigation of executive compensation using over two-hundred firms and in excess of two thousand executives per year over a 5-year period. Results are consistent with the operation of tournaments but fail to find support for the empirical importance of considerations of pay equity at the top of corporations.

Total board remuneration and company performance

Using a hitherto neglected source of data, this paper combines executive emoluments with executive options to construct a broader measure of executive pay than has been possible in earlier British studies. The result of including the long-term share option component of pay along with the more commonly utilized short-term component of emoluments is to reveal executive pay as being significantly more sensitive to company performance than has previously been thought to be the case. The paper questions the current policy stance of British institutional investors and of the Greenbury Committee with respect to executive share options. Copyright 1996 by Royal Economic Society.

Remuneration Committees and Corporate Governance

Using a sample of 220 large publicly held British companies, this study examines the role of the remuneration committee in British boardrooms. Some 30 per cent of the sample reported having such a committee. A reported remuneration committee seemed to be associated with higher levels of pay and made no positive impact on the incentive structure of pay.

The Employer Size-Wage Gap: Evidence for Britain

This paper presents estimates for the employer plant size-wage gap for Britain. Using an ordered probit model, selectivity-corrected wage equations are estimated for three plant size categories. In a comparison between plants with more than 500 workers and those with less than 100, a wage gap estimate of over 17 percent is detected. The wage effects of unionization in plants with more than 500 workers is reported as insignificant. In contrast to evidence provided by T. L. Idson and D. J. Feaster (1990) for the United States, no evidence of nonrandom sorting of workers across plant size is detected. Copyright 1993 by The London School of Economics and Political Science.

Corporate Insurance Purchases and Taxes

An examination of the economics of Corporate purchases of insurance indicates that one strong motivation for insurance purchase lies in the tax laws as they affect insured losses. After a theoretical examination of this point, the analogy is made between the decision to insure or not insure and the decision to lease or not lease. A numerical example is provided by way of illustration. In this way corporate purchases of insurance can be viewed as a tax minimization method of financing losses that arise from insurable risks.

The Effectiveness of the Youth Training Scheme as a Manpower Policy

Using data from the 1985 and 1986 Scottish Peoples Surveys, this paper attempts to measure the effectiveness of the Youth Training Scheme by estimating the impact of Youth Training Scheme participation on both the subsequent probability of employment and the subsequent earnings potential. The Youth Training Scheme is found to have a positive impact on the probability of employment. After allowing for possible sample-selection bias owing to participation being nonrandom, there are indications that the Youth Training Scheme may have a positive impact on subsequent wages, but the estimates are so imprecise that it was not possible to draw any statistically significant conclusions about wage effects. Copyright 1990 by The London School of Economics and Political Science.

Appointments, Pay and Performance in UK Boardrooms by Gender

This article uses UK data to examine issues regarding the scarcity of women in boardroom positions. The article examines appointments, pay and any associated productivity effects deriving from increased diversity. Evidence of gender-bias in the appointment of women as non-executive directors is found together with mixed evidence of discrimination in wages or fees paid. However, the article finds no support for the argument that gender diverse boards enhance corporate performance. Proposals in favour of greater board diversity may be best structured around the moral value of diversity, rather than with reference to an expectation of improved company performance.

The Remuneration Committee and Strategic Human Resource Management

This study questions the adequacy of the agency approach in representing how remuneration committees design executive pay arrangements. Using evidence collected from interviews conducted in late 2006, with 22 members of various UK remuneration committees, we find that concerns with legitimacy push remuneration committees towards an institutional isomorphism in processes and practice. Any interpretation through an agency lens of the design of executive remuneration as being a key component in the toolbox of strategic human resource management needs to be qualified by considerations of neo-institutionalism. There is scope for a melding of the two approaches. The fulfillment of the expectations placed upon the remuneration committee necessitates an adequate allocation of time and resource plus self-awareness on the part of the committee of the inherent tendency to follow the norms, rules of thumb, and customary practice of others. The remuneration committee chair emerges as a pivotal actor, and this position merits being treated as a weighty and onerous appointment, possibly on a par with that of the chair of the audit committee.

The rise and fall of executive share options in Britain

A useful way in which to examine the British approach to top executive pay is through the use made of executive share options as a component of the pay package. In marked contrast with developments in the USA, institutional investors have taken a leading role in conditioning the type of pay package that is possible for Britain’s top executives. This intervention can be seen as leading initially to an expansion in the use of executive share options but more recently to a marked decline in their use. In general, it is far from clear that such intervention has been particularly productive. This paper attempts to trace these developments and, using the actual histories of 62 FTSE-100 companies, offers an empirical evaluation of the effectiveness of option-based incentive pay packages vs. the more recently favored share-based packages.

The ABI Guidelines for Share-Based Incentive Schemes. Setting the hurdle too high?

Abstract This paper examines, from (he perspective of the pay-performance connection, the guideline principles issued since 1984 by the Association of British Insurers (ABI) in connection with the operation of share-based incentive schemes for executives. In particular, attention is paid to the marked change in emphasis that emerged in the 1999 guidelines. The four main dimensions to these guidelines concern: (i) phasing of issue by use of regular awards; (ii) setting of performance criteria (hurdles) against a peer group or bench-mark; (iii) restricting any re-testing of satisfaction of such performance criteria; and (iv) instituting a sliding scale of reward contingent on the performance out-turn against criteria. Results are derived from a simulation over a 14 year period of the implementation of such guidelines in a sample of companies traded on the London Stock Exchange. Empirical results suggest that the pay-performance connection is not always made stronger by setting the hurdle ever higher, and that higher hurdles are best tempered by some latitude in terms of re-testing. The results also highlight the importance of the choice of method of reporting the performance of Executive Share Options when communicating with shareholders and other stakeholders.