Onwards and Upwards: why companies change their executive remuneration schemes, and why this leads to increases in pay

Abstract

This paper reports interview‐based research examining reasons for the continued increase in executive directors' remuneration in large UK companies. This issue has not specifically been addressed by previous studies, which have focused on the level of the increases, rather than their underlying explanations. Reasons given for making changes included: increases due to being below‐market; changing performance‐related schemes that did not pay out or paid less than expected; changes in the company's culture or strategy; changes to senior personnel; and compliance with good practice in human resource management and in corporate governance. The results are analysed through two theoretical lenses. Agency theory provides an explanation of the structure of the contracts; expectancy theory suggests why schemes might be changed to motivate the executives.