Executive Remuneration

Executive Remuneration

In recent years, executive remuneration has been the focus of considerable attention from the public, media, academics and policy makers alike. It is a quintessential corporate governance issue about which there are many different views and opinions. In this section of the ECGI website, we set out some of the most relevant arguments and provide links to academic research and regulations that can shed light on the debate, notably proprietary research that examines the international system of senior management remuneration, from a regulatory and corporate governance perspective.

The debate on executive remuneration can be approached from various angles: as optimal pay structure for aligning pay with performance in order to reduce agency costs; as a regulatory issue with the objective of remedying any system flaws; and as a public policy concern. The debate is also multi-jurisdictional, reflecting the changing dynamics of remuneration, regulation and corporate efficiency in different governance systems.

At the European level, regulation aims to harmonise disclosure. Member states have transposed this EU regulation to different extents. The US and European approaches portrait several divergences in regulation and practice, but also similar and common initiatives that aim to create a global best practice environment.

The objective of this topic page is to share ideas, highlight issues, put forward opinions and raise debates for further reforms in the light of current business practice. The ECGI itself does not take a position on these matters. Rather, the purpose of the Institute is to generate research, stimulate debate and disseminate best practice. In these pages therefore, you will find links to proprietary ECGI research and other references to relevant material on this topic.

The international context

Following the financial crisis, in 2009 the Financial Services Board issued International Principles and Standards on Sound Compensation Practices. These were endorsed by the G20 Leaders at their Summits in London in April 2009 and Pittsburgh in September 2009

The EU context

The EU has led a wide-ranging reform to apply the lessons of the corporate scandals and the financial crisis and to create an accountable corporate environment and integrated financial market.

Commission’s Recommendations and Communications include:

  • Directive of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies
  • CEBS (Committee of European Banking Supervisors) Guidelines on Remuneration Policies and Practices, 10 December 2010
  • Recommendation: Commission Recommendation complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (C(2009) 3177)
  • Commission Recommendation (C(2009) 3159) on remuneration policies in the financial services sector
  • Communication from the Commission Accompanying Commission Recommendation complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies and Commission Recommendation on remuneration policies in the financial services sector (COM(2009) 211)
  • CEBS (Committee of European Banking Supervisors) High-level Principles for Remuneration Policies 20 April, 2009
  • EC Recommendation (2005/162/EC) on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board
  • Commission Recommendation (2004/913/EC) fostering an appropriate regime for the remuneration of directors of listed companies

Member states’ perspective

ECGI Research and Debate    

Executive remuneration has featured in many conferences and in the ECGI's Law and Finance Working paper series as follows:
ECGI Presentations and debates
    
Economics, Politics and the International Principles for Sound Compensation Practices Presentation by Professor Guido Ferrarini at the AEDBF Conference on Financial and Banking Regulation, Paris on 29 October 2010

Mandatory Limits to Executive Remuneration. A Comparative Analysis Presentation by Maria Cristina Ungureanu at the Annual Conference EU Company Law, Academy of European Law (ERA)  in Trier (Germany) on 22-23 March 2010

Troubled Banks, Systemic Risks and the New Standards for Bankers’ Pay. A View from Europe Presentation by Professor Guido Ferrarini at the Executive Compensation Conference, Vanderbilt University, Nashville on 26 February 2010

Remuneration Policies at State-aided Banks Presentation by Professor Guido Ferrarini and Maria Cristina Ungureanu at the Center for Research in Law & Economics (CRELE) Bolzano on 27-28 November 2009
    
Executive Remuneration in Crisis: A Critical Assessment of Reforms in Europe Presentation by Niamh Moloney at the Center for Research in Law & Economics (CRELE) Bolzano on 27 November 2009

"Reforming compensation" A session in the 2009 Transatlantic Corporate Governance Dialogue conference in Washington DC, 17 September 2009
    
“Understanding Directors’ Pay in Europe: A Comparative and Empirical Analysis” by Professor Guido Ferrarini Presentation given at the Conference: Corporate Governance in Crisis?, Luxembourg, 18 June 2009

“Fixing Directors’ Remuneration in Europe. Governance, Regulation and Disclosure” by Professor Guido Ferrarini Presentation given to the European Commission at the Roundtable on Directors’ Remuneration, Brussels, 23 March 2009

A European Perspective on Executive Remuneration by Professor Guido Ferrarini. Presentation given at the E.N.G.’s 7th annual senior executive summit in Brussels on Executive Compensation and Benefits, 16-18 September 2008

“Executive Remuneration in the EU: Comparative Law and Practice” by Professor Guido Ferrarini. Presentation given to the FESE European Financial Markets Convention, London, 13 June 2003

“This House believes that company top executives should be paid like government ministers” Debate that took place at the 4th ECGI Annual Assembly at the Swiss Federal Institute of Technology, Zurich, 9 March 2006

Research Interests

The following ECGI Research members have research interest in this area (click name to see biography and contact details):

Alex Edmans (London Business School) : Guido Ferrarini (University of Genoa) : Jesse Fried (Harvard Law School) : Xavier Gabaix (Harvard University, Economics Department) : Jennifer Hill (Sydney Law School) : Claudio Loderer (Institut für Finanzmanagement, Universität Bern) : Niamh Moloney (Law Department, London School of Economics) : Urs Peyer (INSEAD) : Randall Thomas (Vanderbilt University Law School and Owen School of Management)

Related Working Papers

01 January 2017

The Basic Governance Structure: The Interests of Shareholders as a Class

This paper is the third chapter of the third edition of The Anatomy of Corporate Law: A Comparative and Functional Approach, by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt,...

John Armour | Luca Enriques | Henry Hansmann | Reinier Kraakman
01 November 2016

Measuring Compliance with Executive Remuneration Standards at Controlled Corporations

In this paper we analyze the relationship between conformity to executive remuneration standards, corporate ownership, and the level and structure of CEO compensation for large European listed companies in the years 2007 and 2010....

Roberto Barontini | Stefano Bozzi | Guido Ferrarini
01 September 2016

Are CEOs Born Leaders? Lessons from Traits of a Million Individuals

What makes a CEO? Our study combines a near-exhaustive sample of CEOs of Swedish companies with data on their cognitive and non-cognitive ability and height at age 18. On average, CEOs, particularly large-company CEOs, have much higher...

Renee Adams | Matti Keloharju | Samuli Knüpfer
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Bank Governance

According to a common narrative, in addition to inadequate capital and liquidity, the failure of banks in the financial crisis also reflected their poor governance. By governance we mean broadly the oversight that comes from banks?...

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