MUTUALITY, PERFORMANCE AND EXECUTIVE COMPENSATION†
| Author | Hilary Ingham,Steve Thompson |
| DOI | http://doi.org/10.1111/j.1468-0084.1995.mp57003002.x |
| Date | 01 August 1995 |
| Published date | 01 August 1995 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 57,3(1995)
0305-9049 $3.00
MUTUALITY, PERFORMANCE AND
EXECUTIVE COMPENSATIONI
Hilaiy Ingham and Steve Thompson
I. INTRODUCTION
Although academic interest in the relationship between Chief Executive
Officer (CEO) pay and company performance is not new and can be traced
back over three decades, a recent resurgance of interest in this topic is
apparent. Firstly, the phenomenal growth of certain CEO salaries in the late
eighties caused widespread scrutiny of the linkage between pay and
performance. The empirical results generated were not encouraging;
frequently studies yielded the conclusion that the pay-performance rela-
tionship was either short lived or non-existent.' Latterly, in the US in the
nineties, CEO pay has continued to outpace corporate performance (Byrne,
1991); a finding mirrored for the UK by the recent study of Gregg et al.
(1993), who note the disappearing relationship between pay and
performance.
Of course the issue of performance related pay is but one facet of
corporate governance. It is, however, a potentially powerful tool with which
to align shareholders' and managers' interests. Public awareness of the CEO
pay debate has been heightened by the recent Cadbury Commission which
has investigated corporate governance in UK companies. On the current
efficacy of CEO pay determination as a means to curb opportunistic
behaviour the Commission's report is forthright; it regards the setting of
senior executive remuneration by senior executives as 'the visible signs of
governance system that was not serving companies or their shareholders as
well as it should' (Cadbury, 1992).
Of course, in the context of plc's, linking pay to performance is but one
means by which rent seeking behaviour can be curbed. Thus, for example, the
threat of takeover can act as a powerful deterrent to opportunistic behaviour.
tThe authors would like to thank both the editor and a referee of this journal for valuable
comments on earlier versions of this paper. Additional thanks are due to Paul Simpson, Rob
Watson and participants at the ESRC Industrial Economics Study Group conference, and to
Jonathan Barneft and Adam Cross who provided valuable research assistance. The financial
support of the ESRC under grant number R000233409 is also acknowledged.
A comprehensive view of the literature is given in Rosen (1992).
295
Blackwell Publishers Ltd. 1995. Published by Blackwell Publishers, 108 Cowley Road, Oxford 0X4 1JF,
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