An Examination of Executive Directors' Remuneration in FTSE 350 Companies
El-Sayed, Nader Mahmoud
Thesis or dissertation
University of Exeter
Issues as to the suitability of executive compensation packages have obtained an ever increasing profile in recent years. Whilst there has been quite extensive empirical investigation of pay-performance sensitivity, the framework of performance-pay has received less attention in the literature and examination to date. Besides this - whilst there has been a quantum of investigation of relationships between compensation and performance, there has been less focus on case study based analysis. In this context, the current study makes a twofold contribution to the examination of executive directors’ remuneration in FTSE 350 companies. First, this research aims to empirically investigate linkages between the nature and amount of compensation packages and company performance with a particular focus on examining the extent of interrelationships between pay and performance over a ten year period from 1999 to 2008. Within the scope of a variety of theoretical perspectives, this deductive study puts a focus on addressing the question of whether managerial compensation is the greater influence on firm performance or whether it is the latter which has the greater influence on the former. Second, this study seeks to qualitatively add to the relevant literature by means of a longitudinal case study of remuneration at UK based major multi-national company, BP, over a ten year period from 2001 till 2010. Within the context of a variety of theoretical and institutional perspectives, this inductive study explores, by means of investigation of BP’s Directors Remuneration Reports, the role of the BP remuneration committee in setting the mechanisms and structures which determine the nature and extent of executive remuneration packages at BP and considers the wider generalisability of the findings therefrom. Overall the current study utilises a mixed methods approach via a combination both quantitative and qualitative modes of analysis – an approach which is relatively rare in the discipline of research into corporate governance and related issues. The outcomes from the empirical work show evidence of the presence of dual positive associations between executive compensation and company performance. However, the results do indicate that executive compensation is more influential in its effect on firm performance than the framework of performance-related pay. This finding is interpreted as lending support to the stewardship and/or tournament theories as to underlying drivers of executive remuneration in comparison with agency theory, represented by agent-principal or managerial hegemony perspectives, as an explanatory of the construction of executive remuneration and the link with firm performance. Similar to prior literature, the empirical findings indicate that equity-based compensation is more robust in the linkage with firm performance than cash pay dominated packages. However, the results showed that the existence of remuneration committees in general reveals insignificant and negatively related to total CEO/executive remuneration. This finding highlights therefore the need to put a focus on the actual role of compensation committee in setting the type and extent of executive pay packages in a large UK company. The outcomes from the archival case study also suggest that it is difficult to find significant support for a pure agency theory approach whereby shareholders seek to align their interests directly with those of their managers as a driver of executive compensation packages. There is more evidence suggestive of a managerial power/hegemony perspective which is heavily mediated by the presence of powerful non-executive directors and the institutional presence of the remuneration committee. Perhaps the most significant aspects to emerge from the case study are the importance of personal relationships and power at boardroom level. Beyond this the inferences of the supplementary content analysis conducted specifically on the Directors Remuneration Reports are suggestive of a focus on overall BP performance rather than on the specific activities and achievements of individual executive directors. In conclusion, the findings of the present study provide a wealth of detail both quantitative and qualitative as to the manner in which executive remuneration has been set in the UK in recent years and as to linkages both with corporate performance and underlying theories of the determinants of executive remuneration. As such it sheds light on an area of importance and one of continued private and public concern and may be of interest to those responsible for governance within firms and to wider public and regulatory interest as well as future researchers in the field.
Egyptian Cultural and Educational Bureau in London as a representative of the Egyptian Ministry of Higher Education
Doctor of Philosophy in Accountancy