How Executive Directors' Remuneration is Determined in Two FTSE 350 Companies:Results of an Exploratory Study

This paper sets out the results of interview-based research into the way inwhich executive directors’ remuneration is set in two UK utilities. Although thesubject of executive directors’ remuneration has been widely researched, littlework has addressed the question ‘how is the directors’ remunerationdetermined?’. This study addresses that research gap through direct and in-depthquestioning of key people involved in the remuneration-setting process. Researchwas carried out at two UK utilities, both listed in the FTSE 350. In eachcompany, interviews were conducted individually with the key executives and nonexecutives involved in the remuneration-setting process, and with thecompensation consultants who acted as their advisors, to determine the processesundertaken and the factors affecting their decisions. The interviews were semistructured, in order to enable open discussion and ensure a wide-rangingdiscussion of the protagonists’ actions and reasoning. The findings of theresearch project reflected both economic and social-psychological theoriesadopted in the executive remuneration literature. The interviews showed that thelevel and structure of remuneration were clearly influenced by ‘the market’,although issues were surfaced about the problems of determining a suitablecomparator market. Institutional theory influences were identified in the leveland structure of the pay, and the way trends in practices influenced theprotagonists. Furthermore, the way in which the companies’ policies weretailored to their corporate strategies was consistent with c