Executive Remuneration: A Comparative Overview II

In this paper, the first edition of which was published 10 years ago, we analyse prior and current trends in the regulation and practice of executive remuneration. The role of regulation and governance in this area have further increased in the last decade and the standards of pay governance and structure have spread from the financial sector to the non-financial one. Consequently, today’s remuneration practices are substantially shaped not only by the need to align the interests of managers and shareholders and to reduce managerial agency costs at listed companies, but also by the hard and soft laws tackling corporate governance and remuneration structures. Moreover, regulation and practice respond to social issues and political pressures, reflecting concerns about “excessive” pay to corporate managers, inequality in the distribution of wealth and the need to align incentives with environmental and social issues. We examine the main law and policy questions concerning incentive pay, including the optimal design of variable remuneration and the importance of long-term pay. Amongst the governance mechanisms, we consider both the role of boards and independent directors, and that of shareholders under say on pay rules, considering the rise of shareholder engagement in listed companies across the Atlantic. We especially analyse regulatory developments in the EU over the last decade comparing the same with developments at member state level and in the UK and the US. We also focus on the regulation of pay structures, showing that long-term incentives are clearly favoured for both financial and non-financial companies by either regulators or institutional investors. However, financial institutions are the main target of post-crisis regulatory reforms, firstly at international level and secondly in the UK, US and the EU, where the FSB principles have been implemented along partially diverging routes.