Maria Cristina Ungureanu

Executive Remuneration in Crisis: A Critical Assessment of Reforms in Europe

This article considers the regulation “on the books” of executive pay across the EU and the evidence “in action” on corporate practice concerning executive pay (based on disclosures by FTSE Eurofirst 300 companies) in relation to the best practice recommendations set out in two key Commission Recommendations from 2004 and 2005. It finds that Member State implementation of the two Recommendations has been patchy and, in particular, that reliance on Corporate Governance Codes has not resulted in the embedding of good practices, particularly with respect to disclosure concerning executive pay, across Europes largest companies. It argues that if the EU is to succeed in promoting stronger alignment between shareholder and manager interests by means of the executive pay contract, closer attention is needed to remuneration governance and that a mandatory, harmonised disclosure obligation should be introduced. Although the Commission has recently adopted a 2009 Recommendation on executive pay in the corporate sector generally as part of its response to the financial crisis, the article suggests that this attempt to influence the design of executive pay is misconceived and that attention would have been better focused on the enforcement of basic disclosure obligations.

Directors' Remuneration Before and after the Crisis: Measuring the Impact of Reforms in Europe

In this paper we measure the impact of recent reforms on directors’ remuneration by comparing the remuneration practices at large European listed companies before and after the financial crisis. We analyse the data concerning directors’ remuneration at FTSE Eurofirst 300 Index companies and assess to what extent the changes occurred between 2007 and 2010 reflect the economic crisis determined by the 2008 financial turmoil and the remuneration reforms generated by the same. Our analysis reveals that country-specific characteristics such as corporate governance, firm ownership, and the nature and quality of the legal system still have a relevant impact on the level and structure of directors’ pay.Section I briefly connects our work with previous studies in this area, while section II introduces some core aspects of recent EU and national reforms. In section III, we analyse the data concerning remuneration governance and disclosure, and show that all firms have experienced improvements. However, variations persist reflecting national regulations and practices. Moreover, companies with more dispersed ownership tend to comply better with remuneration governance and disclosure requirements. Our data confirm and extend to Europe theoretical predictions and previous country-specific empirical evidence about the impact of ownership concentration on remuneration governance and disclosure. In section IV, we analyse pay structure and levels. We measure the level of total compensation, the variable component including the estimated value of annual stock grants and stock options. The evolution of total compensation between 2007 and 2010 reveals that pay practices are permeable to the effect of the financial crisis. Board total compensation decreases in most European countries. However, significant differences emerge between financial and non-financial companies, with board compensation at financial firms decreasing rather significantly, while non-financial firms experience less relevant changes. Also the CEO compensation level and structure significantly changed in 2010 relative to 2007, mainly as a result of the reduction in variable cash compensation. This is partly due to the negative performance of firms in 2010. However, our results show that these changes may be also related to other factors, in particular the regulatory pressure on financial firms in the relevant period. Indeed, several items in the pay structure of financial firms go in the direction indicated by regulators, i.e. better focus on the risk implications of pay, appropriate balance between variable and fixed compensation, and a substantial portion of variable compensation awarded in shares or share-linked instruments. Section V concludes by advancing some policy suggestions.

Bankers’ Pay after the 2008 Crisis: Regulatory Reforms in the US and the EU

We examine the political dynamics which led to the codification of the Principles and Standards for sound compensation practices at financial institutions at international (G 20) level and to their subsequent implementation on both sides of the Atlantic. We show that the regulation of bankers’ pay is presently more detailed and less flexible in Europe than in the US, despite the fact that the 2008 crisis originated in the latter country and the levels of executive pay were no doubt higher in the US than in Europe. We also find that remuneration practices at large US banks are strongly converging towards the international Principles, well beyond what required under applicable regulations. As a result, both EU and US compensation practices at large banks generally converge, whilst the framework is more divergent when considering banks that are less complex and do not have significant international activities.