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CEO pay in the United Kingdom, 1968-2022

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  • Pepper, Alexander

Abstract

This paper contributes to the literature on British business elites by examining the development of pay structures and levels for CEOs of large listed companies in the United Kingdom for the period 1968–2022. It describes two competing theories about executive pay, ‘optimal contracting theory’ and the ‘market failure approach’, and considers to what extent they help to explain the historical data. The paper notes how the imitation of American pay structures, especially stock options, in the 1980s, along with the ending of high marginal tax rates which had been prevalent in the UK in the 1960s and 1970s, coincided with steep rises in executive pay. It concludes that isomorphic social comparisons, a prisoner’s dilemma at the heart of the work of remuneration committees, a collective action problem faced by institutional investors, and a discount that executives apply to the perceived value of stock options has resulted in top pay inflation.

Suggested Citation

  • Pepper, Alexander, 2024. "CEO pay in the United Kingdom, 1968-2022," LSE Research Online Documents on Economics 126504, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126504
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    File URL: http://eprints.lse.ac.uk/126504/
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    More about this item

    Keywords

    business elites; Chief Executive Officers; FTSE100 companies; Corporate governancec; executive pay; market failure approach; optimal contracting theory;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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