Elena Merino

Control of Directors’ Compensation in Spanish Companies: Corporate Governance and Firm Performance

Purpose – The purpose of this chapter is to examine the hypothesized effects of board characteristics and performance on directors’ compensation in the Spanish corporations, whose corporate governance is a special example of a unitary board system. Methodology/approach – In order to test the influence of a set of factors on directors’ compensation levels, we have developed several models based on linear panel data regression. The sample included 76 listed companies on the Spanish computerized trading system or Continuous Market for the period 2004–2009. Findings – The control mechanisms, like board characteristics and performance and their effect on the level of directors’ compensation, depend on the types of director (executive, independent and proprietary). Research limitations/implications (if applicable) – This study has certain limitations mainly related to problems associated with obtaining information. The methodology should be complemented by other types of analyses, such as the influence of the characteristics of the board on the remuneration structure in a greater level of disaggregation. Practical implications (if applicable) – The results of this research chapter give reasons to regulators and investors to be aware of the importance of the boards characteristics as corporate control mechanisms over the directors’ remuneration and the necessity of connection between directors’ compensation and the firms performance. Originality/value of paper – Firstly, descriptive empirical evidence on the level of directors’ compensation is provided within a unitary board system for different types of directors. Secondly, an ample panel data set enables the examination of a set of determinants using panel data methods which control for unobserved firm heterogeneity. Finally, the perspective is extended from executive director compensation to other types of directors, such as proprietary or independent, which are very important features of the Spanish board structure.

The role of transparency and voluntary disclosure on the control of directors’ compensation

Abstract Purpose This work provides an empirical analysis to determine whether directors’ compensation is lower (“transparency control effect” and “transparency deterrent effect”) or higher (“effects of transparency on increasing competition in pay”) among firms with greater transparency in terms of directors’ compensation. Methodology/approach A disclosure index about board compensation and different models based on linear panel-data regression have been developed, on a sample of 73 Spanish firms for the period 2007–2012. Findings Our results suggest that disclosure on pay strategy to directors leads to an increase in directors’ compensation, therefore, in this case, the effect of transparency on increasing competition in pay seems to prevail. Conversely, the disclosure on individual directors’ compensation and payment leads to a decrement in directors’ compensation, prevailing the transparency control effect and transparency deterrent effect. Social implications The results of this study might be of interest to investors (to take into account these effects before they implement additional corporate governance reforms) and regulators (to be aware of the importance of this issue). Originality/value First, we study the effect that transparency and voluntary disclosure regarding board compensation has on the level of directors’ compensation. Second, in this study we go one step further in the transparency of board compensation disclosures by constructing a disclosure index. Finally, the results contribute to the necessary debate that is currently taking place in the Spanish, European and international context regarding this issue.

“Board independence” and compensation structure of directors

This paper examines the relationship between board independence and the level and structure of directors´ compensation to determine whether this “independence” exerts a moderating effect on the different systems of remuneration granted to directors. We have developed several models based on linear panel data regression. The sample included 76 listed companies on the Spanish Continuous Market for the period 2004–2009. The results reveal that the moderating effect of board independence on directors´ compensation depends on the type of remuneration, being especially significant in the case of variable remuneration but not for fixed remuneration. This is significant for the study context because the fixed remuneration is the most important retribution concept. The results of this paper reveals that the inefficient of the board as mechanisms of control on fixed remuneration could be translated into an insufficient control of wealth extraction from the shareholders by the management. Our results contribute to the existing debate on the appropriate norms of corporate governance control over the directors’ compensation. These results offer additional evidence about the impact of board independence over the structure of compensation granted to directors, issue shortly studied so far.