Abstract
In spite of more research on CEO compensation, where more of this research is anchored in agency or managerialist perspectives, less has been done on its determinants in firms. This paper contributes to the literature by determining the effect of Independent directors, CEO ownership and Profitability on executive cash compensation in UK. Agency theory informed the study. The study adopted an explanatory design Census technique was used as the study only included all the 20 firms for the past 3 years from 2008–2010. The study findings have shown that CEO ownership has a positive and significant effect on CEO compensation. The results have also show that the percentage of independent directors is significantly related to a decrease in the compensation levels of CEO compensation. Firm profitability was positively related to CEO compensation positing that CEOs salary as well as compensation increased with an increase in firm performance. It is therefore imperative for firms to link reward to corporate and individual performance so as to counter the agency problems. The interaction between corporate governance and CEO compensation is an avenue for more research for instance the relationship between shareholders and CEO compensation.
Highlights
In spite of a more research on CEO compensation, where more of this research is anchored in agency or managerialist perspectives, less has been done on its determinants in firms (Tosi, Werner, Katz & Gomez-Mejia, 2000)
The multiple regression model used in this study is given as; Where, =CEO compensation = constant, β1... β3= the slope which represents the degree in which CEO compensation changes as the independent variable change by one unit variable. = Profitability, = Independent directors, = CEO ownership, ε = error term, t = measure of time, i = number of firm observation
Findings in table 4.1 showed that listed firms disclosed Return on Asset (ROA) at mean ratio of 6.1903
Summary
In spite of a more research on CEO compensation, where more of this research is anchored in agency or managerialist perspectives, less has been done on its determinants in firms (Tosi, Werner, Katz & Gomez-Mejia, 2000). There has been a lot of controversy creating more and more the debate on CEO compensation. This has given studies on CEO compensation more attention. In the last century about 250 studies on chief executive officer compensation have been conducted, the outcomes of these studies have been disappointing since mots of authors of these studies have been attempting to use many difference methods in measuring CEO compensations (Tosi, 1989, cited by Miller, 1995)
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