IDEAS home Printed from https://ideas.repec.org/a/eee/bracre/v41y2009i1p21-30.html
   My bibliography  Save this article

Relative performance evaluation in board cash compensation: UK empirical evidence

Author

Listed:
  • Liu, Lisa Shifei
  • Stark, Andrew W.

Abstract

This paper presents an empirical examination of whether evidence of the implicit use of relative performance evaluation (RPE) can be found in the cash compensation of boards of directors for 169 UK non-financial listed companies that existed for all of the period from 1971 to 1998. We perform two types of analyses. Initially, we estimate individual firm time series regressions of the change in board cash compensation against measures of firm and peer group performance. The measures of firm performance we use are annual cash stock market returns and pre-tax accounting earnings. Peer group measures of performance are industry value-weighted average cash stock market returns and industry value-weighted average pre-tax accounting earnings. Subsequently, we analyse the data as a balanced panel.

Suggested Citation

  • Liu, Lisa Shifei & Stark, Andrew W., 2009. "Relative performance evaluation in board cash compensation: UK empirical evidence," The British Accounting Review, Elsevier, vol. 41(1), pages 21-30.
    • Handle: RePEc:eee:bracre:v:41:y:2009:i:1:p:21-30
    DOI: 10.1016/j.bar.2008.07.015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0890838908000814
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.bar.2008.07.015?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert Gibbons & Kevin J. Murphy, 1990. "Relative Performance Evaluation for Chief Executive Officers," ILR Review, Cornell University, ILR School, vol. 43(3), pages 30, April.
    2. Ciscel, David H & Carroll, Thomas M, 1980. "The Determinants of Executive Salaries: An Econometric Survey," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 7-13, February.
    3. repec:bla:obuest:v:60:y:1998:i:4:p:485-507:a is not listed on IDEAS
    4. Lewellen, Wilbur G & Huntsman, Blaine, 1970. "Managerial Pay and Corporate Performance," American Economic Review, American Economic Association, vol. 60(4), pages 710-720, September.
    5. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    6. Main, Brian G M & Bruce, Alistair & Buck, Trevor, 1996. "Total Board Remuneration and Company Performance," Economic Journal, Royal Economic Society, vol. 106(439), pages 1627-1644, November.
    7. Paul Gregg & Sarah Jewell & Ian Tonks, 2005. "Executive Pay and Performance in the UK 1994-2002," The Centre for Market and Public Organisation 05/122, The Centre for Market and Public Organisation, University of Bristol, UK.
    8. Conyon, Martin J & Leech, Dennis, 1994. "Top Pay, Company Performance and Corporate Governance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 229-247, August.
    9. Robert Bushman & Ellen Engel & Abbie Smith, 2006. "An Analysis of the Relation between the Stewardship and Valuation Roles of Earnings," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 53-83, March.
    10. Walker, Martin, 1989. "Agency theory: A falsificationist perspective," Accounting, Organizations and Society, Elsevier, vol. 14(5-6), pages 433-453, October.
    11. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages 640-671, November.
    12. Conyon, Martin & Gregg, Paul & Machin, Stephen, 1995. "Taking Care of Business, Executive Compensation in the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 704-714, May.
    13. Antle, R & Smith, A, 1986. "An Empirical-Investigation Of The Relative Performance Evaluation Of Corporate-Executives," Journal of Accounting Research, Wiley Blackwell, vol. 24(1), pages 1-39.
    14. Richard A. Lambert, 1983. "Long-Term Contracts and Moral Hazard," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 441-452, Autumn.
    15. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    16. Ely, Km, 1991. "Interindustry Differences In The Relation Between Compensation And Firm Performance Variables," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 37-58.
    17. Trevor Buck & Alistair Bruce & Brian G. M. Main & Henry Udueni, 2003. "Long Term Incentive Plans, Executive Pay and UK Company Performance," Journal of Management Studies, Wiley Blackwell, vol. 40(7), pages 1709-1727, November.
    18. Martin J Conyon & Paul Gregg, 1994. "Pay at the Top: A Study of the Sensitivity of Top Director Remuneration to Company Specific Shocks," National Institute Economic Review, National Institute of Economic and Social Research, vol. 149(1), pages 83-92, August.
    19. Paul Gregg & Stephen Machin & Stefan Szymanski, 1993. "The Disappearing Relationship Between Directors' Pay and Corporate Performance," British Journal of Industrial Relations, London School of Economics, vol. 31(1), pages 1-9, March.
    20. Andrew Benito & Martin Conyon, 1999. "The Governance of Directors' Pay: Evidence from UK Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 3(2), pages 117-136, June.
    21. Janakiraman, Sn & Lambert, Ra & Larcker, Df, 1992. "An Empirical-Investigation Of The Relative Performance Evaluation Hypothesis," Journal of Accounting Research, Wiley Blackwell, vol. 30(1), pages 53-69.
    22. Lambert, Ra & Larcker, Df, 1987. "An Analysis Of The Use Of Accounting And Market Measures Of Performance In Executive-Compensation Contracts," Journal of Accounting Research, Wiley Blackwell, vol. 25, pages 85-129.
    23. Brian Main, 2006. "The ABI guidelines for share-based incentive schemes: setting the hurdle too high?," Accounting and Business Research, Taylor & Francis Journals, vol. 36(3), pages 191-205.
    24. Martin J. Conyon, 1998. "Directors' Pay and Turnover: An Application to a Sample of Large UK Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(4), pages 485-507, November.
    25. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vassili Joannides & Nicolas Berland & D. T. Wickramasinghe, 2010. "Post-Hofstede diversity/cultural studies: what contributions to accounting knowledge?," Post-Print hal-00676570, HAL.
    2. Vassili Joannides & Nicolas Berland & Danture Wickramasinghe, 2010. "Post-Hofstede diversity/cultural studies: what contributions to accounting knowledge?," Post-Print hal-01661685, HAL.
    3. Abdul Wahab, Nor Shaipah & Holland, Kevin, 2012. "Tax planning, corporate governance and equity value," The British Accounting Review, Elsevier, vol. 44(2), pages 111-124.
    4. Vassili Joannides & Nicolas Berland & D. T. Wickramasinghe, 2010. "Post-Hofstede diversity/cultural studies: what contributions to accounting knowledge?," Grenoble Ecole de Management (Post-Print) hal-00676570, HAL.
    5. Vassili Joannides & Nicolas Berland & Danture Wickramasinghe, 2010. "Post-Hofstede diversity/cultural studies: what contributions to accounting knowledge?," Grenoble Ecole de Management (Post-Print) hal-01661685, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hristos Doucouliagos & Janto Haman & T.D. Stanley, 2012. "Pay for Performance and Corporate Governance Reform," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 670-703, July.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    3. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    4. Paul Gregg & Sarah Jewell & Ian Tonks, 2005. "Executive Pay and Performance in the UK 1994-2002," The Centre for Market and Public Organisation 05/122, The Centre for Market and Public Organisation, University of Bristol, UK.
    5. Agyei-Boapeah, Henry & Ntim, Collins G. & Fosu, Samuel, 2019. "Governance structures and the compensation of powerful corporate leaders in financial firms during M&As," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 37(C).
    6. Wright, Peter & Thompson, Steve & Girma, Sourafel, 2002. "Merger Activity and Executive Pay," CEPR Discussion Papers 3255, C.E.P.R. Discussion Papers.
    7. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    8. Gregg, Paul & Jewell, Sarah & Tonks, Ian, 2010. "Executive pay and performance in the UK," LSE Research Online Documents on Economics 119084, London School of Economics and Political Science, LSE Library.
    9. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    10. Lewellen, Wilbur G. & Park, Taewoo & Ro, Byung T., 1996. "Self-serving behavior in managers' discretionary information disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 21(2), pages 227-251, April.
    11. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
    12. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    13. Phillip McKnight & Cyril Tomkins, 1999. "Top Executive Pay in the United Kingdom: A Corporate Governance Dilemma," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 223-243.
    14. Rafel Crespí–Cladera & Carles Gispert, 2003. "Total Board Compensation, Governance and Performance of Spanish Listed Companies," LABOUR, CEIS, vol. 17(1), pages 103-126, March.
    15. Baber, William R. & Kang, Sok-Hyon & Kumar, Krishna R., 1998. "Accounting earnings and executive compensation:: The role of earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 25(2), pages 169-193, May.
    16. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    17. Hristos Doucouliagos & Janto Haman & Saeed Askary, 2007. "Directors' Remuneration and Performance in Australian Banking," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1363-1383, November.
    18. Johnson, Shane A. & Tian, Yisong S., 2000. "Indexed executive stock options," Journal of Financial Economics, Elsevier, vol. 57(1), pages 35-64, July.
    19. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
    20. Paul L. Joskow & Nancy L. Rose, 1994. "CEO Pay and Firm Performance: Dynamics, Asymmetries, and Alternative Performance Measures," NBER Working Papers 4976, National Bureau of Economic Research, Inc.
    21. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:bracre:v:41:y:2009:i:1:p:21-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/the-british-accounting-review .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.