Premium
The Disappearing Relationship Between Directors' Pay and Corporate Performance
Author(s) -
Gregg Paul,
Machin Stephen,
Szymanski Stefan
Publication year - 1993
Publication title -
british journal of industrial relations
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.665
H-Index - 70
eISSN - 1467-8543
pISSN - 0007-1080
DOI - 10.1111/j.1467-8543.1993.tb00377.x
Subject(s) - remuneration , accounting , earnings , business , finance
In this paper we investigate the relationship between the remuneration of the highest paid director and the economic performance of approximately 300 large UK companies over the 1980s and early 1990s. The rate of growth of directors' remuneration was very high over this time period (about 20 per cent per year on average) and very weakly linked to corporate performance. Any such link breaks down after 1988, when the very high pay awards received by top directors in the recessionary period up to 1991 appear to be unrelated to the performance of their companies, whether corporate performance is measured using stock market data or using accounting data on earnings per share. Rather, it appears that corporate growth is an important determinant of the change in directors' remuneration. These results strongly call into question the effectiveness of current systems of pay determination for top company directors.