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Research Handbook on Executive Pay

Research Handbook on Executive Pay

Research Handbooks in Corporate Law and Governance series

Edited by Randall S. Thomas and Jennifer G. Hill

Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay.

Chapter 3: Executive Pay and Corporate Governance Reform in the UK: What Has Been Achieved?

Steve Thompson

Subjects: business and management, corporate governance, law - academic, company and insolvency law, corporate law and governance


Steve Thompson 1 INTRODUCTION The purpose of this chapter is to evaluate the consequences of corporate governance reform on the remuneration and tenure of executives in the UK. The country has now experienced 20 years of corporate governance reforms since the establishment of the Cadbury committee in 1991. A consistent theme over this time has been the need to make the employment contracts of senior executives, and particularly their remuneration practices, more reflective of the interests of the shareholders they serve and to link executive rewards more closely to performance outcomes. This is explicitly formulated as a principle of the UK Corporate Governance Code, which currently requires: Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance. (Financial Reporting Council, June 2010) A battery of direct and indirect measures has been deployed to further these ends. These include the progressive strengthening of the importance, independence and responsibilities of non-executive directors, both absolutely and relative to the position of executives. Successive versions of the Code have become increasingly more prescriptive about the appropriate processes for determining executive rewards, structuring incentives, specifying tenure and minimizing executives’ influence on the setting of their own remuneration. Supporting legislation and regulation has strengthened shareholder voice, most especially by the introduction of...

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