The Disappearing Relationship Between Directors' Pay and Corporate Performance
| DOI | http://doi.org/10.1111/j.1467-8543.1993.tb00377.x |
| Published date | 01 March 1993 |
| Author | Paul Gregg,Stephen Machin,Stefan Szymanski |
| Date | 01 March 1993 |
British
Journal
of
Industrid Relations
31:
1
March
1993
0007-1080
The Disappearing Relationship
Between Directors' Pay and Corporate
Performance
Paul
Gregg",
Stephen Machin**
and
Stefan
Sz
ymanski
* *
*
Final version accepted
9
September
1992.
Abstract
In
this
pup
er we investigate the relationship between the remuneration
of
the
highest puid 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 recessionury period
up
to 1991
appear
to
be unrelated
to
the performance
of
their cornpanies, 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.
'Pay has
to
reflect performance across the board, in the boardroom
as
well as
the
shopfloor, in the public
as
well
as the
private
sector.'
John Banham
(CBI)
on
BBC
Radio
4,
17
April
1991
1.
Introduction
Much has been made
of
the high pay awards that have frequently been given
to company directors throughout the
1980s
and particularly in the early
1990s.
Central
to
these debates
IS
whether such awards are justified
by
the
economic performance of the cornpanies involved.
To
date, although there
*National Institute
of
Economic and Social Resedrch and Ccntre
for
Economic Perform-
**Department
of
Economics, University College London, and Centre
tor
Economic Perform-
ance. London School
of
Economics
ance, London
School
of
Economics
***London Busmesf School
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