European Differences in Executive Pay and Corporate Governance

Executive pay and corporate governance issues continue to attract wide academic, media and policy attention. The very high salaries enjoyed by senior executives in corporations in some economies are often contrasted with the relatively low pay received by executives in other economies. The case of the United states (high CEO pay) and Japan (low CEO pay) is an obvious example. Despite the continued fascination with executive pay issues, as well as what constitutes an optimal corporate governance mechanism, there has been very little academic research comparing executive pay across economies. The primary aim of the paper is to present some new evidence on the pattern of European executive pay in the mid-1990s. One of the question we address is: Are differences in European executive pay determined by differences in corporate governance regimes? Do economies with radically different board structures have different levels and structures of executive pay? Our results indicate that there are significant differences in executive pay across Europe which are explained in large part by the particular job position and company size. Howver, after controlling for these factors we find that country specific effects are important in executive pay determination. Furthermore, the results show that the effects of different corporate governance systems across Europe on executive pay turn out to be ambiguous in our sample.