Remuneration of Non-Executive Directors: Evidence from the UK
52 Pages Posted: 16 Sep 2015 Last revised: 17 Oct 2016
Date Written: April 1, 2015
This study examines the remuneration of non-executive directors, examining individual monitoring characteristics and director capital in addition to firm characteristics. Using a large sample of FTSE All-Share non-executive directors from 2001-2012, we find that remuneration is positively linked to both directors’ individual characteristics and firm characteristics. We find that director age, tenure, and network size are positively related to remuneration, suggesting that directors’ ability to contribute to board decision-making and their set of resources are valued by firms. We find that director remuneration is negatively related to monitoring characteristics such as director independence, suggesting possible agency considerations, as effective monitors of top management are paid less. However, director ownership has a non-linear relationship with remuneration, and is substitutive at higher levels of ownership. We also observe that UK boards are relatively homogeneous, with few female directors and even fewer Chairmen, and find strong evidence of a gender gap in remuneration when examining inter- and intra-firm variations. Our findings have implications for regulators who seek to intervene in board appointments, as they indicate that firms do not necessarily value or reward resources brought by female or independent directors.
Keywords: Corporate governance, non-executive director remuneration, non-executive directors, board characteristics
JEL Classification: J30, J33, M50, M52, M51
Suggested Citation: Suggested Citation