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Cambridge Journal of Economics Advance Access published online on July 14, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep031
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Board structure and executive pay: evidence from the UK

Paul M. Guest*

* Cranfield University

Address for correspondence: Cranfield School of Management, Cranfield University, Cranfield, Bedfordshire, UK MK43 0AL, email: pmg20{at}hermes.cam.ac.uk

We examine the impact of board structure on executive pay for 1,880 UK public firms over the period 1983–2002, using panel data analysis. First, the proportion of non-executive directors tends to decrease the rate of increase in executive pay whereas board size tends to increase it. Second, the proportion of non-executives strengthens the relation between the rate of increase in executive pay and changes in performance. In particular, although for firms in general the pay–performance link is much weaker when performance is poor, a higher proportion of non-executives strengthens this link considerably. Finally, firms that increase the number of non-executives in order to comply with the Cadbury Code of 1992, experience both a decline in the rate of increase in executive pay and an increase in pay–performance sensitivity.

Key Words: Executive pay • Board size • Board composition • UK • Cadbury

JEL classifications: G32, G34

Manuscript received September 20, 2007; final version received March 6, 2009.


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