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Pay at the Top: A Study of the Sensitivity of Top Director Remuneration to Company Specific Shocks

Published online by Cambridge University Press:  26 March 2020

Martin J Conyon  and
Paul Gregg
Martin J Conyon
Affiliation:
Centre for Corporate Strategy and Change, University of Warwick and the Institute of Economics and Statistics, University of Oxford
Paul Gregg
Affiliation:
National Institute of Economic and Social Research, London and Centre for Economic Performance, London School of Economics.
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Abstract

This article considers the empirical determination of top directors' pay during the 1980s. In a sample of approximately 170 companies between 1985 and 1990 we find that director pay is significantly related to shareholder returns, but the estimated elasticity is small. In line with other research, sales growth is an inaportant predictor o f top pay. The current article is novel in that we study whether limits to managerial discretion and organisational restructuring are important in influencing top pay. Importantly, we find that company sales growth through acquiring other firms and increasing indebtedness significantly raise top directors' remuneration above that which can be achieved by internal or organic growth, Also relative performance evaluation in terms of sales growth, reducing union presence and whether or not the company is a subsidiary are all important influences on top pay. However, yardstick conzparisons appear not to apply to shareholder returns, yet under-performance post-acquisition is not punished in line with under-performance for other reasons. Overall though the after allowing for performance and such changes to the firms' operating environment top directors' remuneration the going rate still rose at a rate of 12 to 16 per cent per year between 1985 and 1990, In real terms this was approximately four times that of the average worker in the same sample of firms.

Type
Articles
Information
National Institute Economic Review , Volume 149 , August 1994 , pp. 83 - 92
Copyright
Copyright © 1994 National Institute of Economic and Social Research

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Footnotes

∗

Our thanks go to Andrew Britton, Andy Cosh, Paul Geroski, Brian Main, Dan Maldoom, Nigel Pain, Mike Waterson and two anonymous referees for valuable suggestions and comments during the preparation of this article. The authors gratefully acknowledge funding from the Leverhulme Trust (Gregg) and from the Webb Medley Fund & the Economic and Social Research Council (Conyon) Thanks are also due to Gerry Carlin for able and efficient research assistance. Errors remain our own.

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