Corporate governance and executive pay: an integrative approach

Lee, Sophie (2013) Corporate governance and executive pay: an integrative approach. PhD thesis, London School of Economics and Political Science.

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Abstract

Corporate governance and executive pay have been much studied in the past as separate topics. The present study examines both topics simultaneously and endeavours to draw from this unified view a synthesis that can throw light on future governance reforms. Most prior research has examined the relationship between various governance mechanisms and company performance but unambiguous links have proved difficult to establish empirically. The study investigates executive compensation qualitatively and quantitatively in the context of corporate governance. It first conducts a critical review of the literature to uncover potential reasons for the extant conflicting results and to gain an up-to-date understanding of the role and effects of pay. This provides a perspective for interpreting the results of the second part of the study: a detailed analysis of the relationship between the remuneration of FTSE 100 directors and company performance during 2004-2009. The exercise seeks to shed light on whether increased governance activity has influenced pay practices among UK’s largest companies. Despite far-reaching governance reforms, the study finds that executive pay is still largely determined by company size and there are no signs of the pay-performance relationship becoming stronger over time. It further reveals that CEO pay is less performance-related than other directors and provides evidence that total cash is the pay element most strongly associated to performance. Taken together, the findings suggest that the UK’s governance system might be fragmented and incoherent, and that the flexibility offered by the ‘comply or explain’ approach is not fully exploited. They also lend support to the contention that managerial power and multiple agency problems affect board independence and the effectiveness of governance mechanisms, including executive pay. It closes with some considerations to integrate any lessons learned into pointers for future reforms.

Item Type:	Thesis (PhD)
Additional Information:	© 2013 Sophie Lee
Library of Congress subject classification:	H Social Sciences > HC Economic History and Conditions
Sets:	Departments > Management
URI:	http://etheses.lse.ac.uk/id/eprint/867

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