The Impact of Merger Activity on Executive Pay in the United Kingdom

We examine the impact of mergers and acquisitions on the remuneration of CEOs in the UK from 1981 to 1996. We find that CEO pay is not strongly related to company performance. In contrast, increases in firm size do have a significant impact. There is also evidence that acquisitions offer CEOs the scope to influence their pay positively. We also note however that CEOs engaging in 'wealth-reducing' acquisitions experience significantly lower remuneration than their counterparts whose deals meet with market approval. This result suggests that shareholder-principals have at least some success in penalizing managers for unwarranted, empire-building, mergers. Copyright (c) The London School of Economics and Political Science 2006.