Restricting the Use of Performance Related Elements, A Step to Curbing Excessive Executive Remuneration

Abstract

Performance related pay has become a major part of executive’s remuneration package in the UK and other countries. The purpose of using performance related pay is to strengthen the link between pay and performance whilst enhancing accountability and transparency in the pay setting process. It is difficult to difficult to objectively judge company performance in reference to executive as company performance is achieved by the collective performance of the company’s workforce at large. Furthermore, there exist no best practice on the performance measures that companies should use to determine the performance of the executives and the company. This study seeks to investigate the relationship between executive pay and company performance using a case study of nineteen FTSE 100 companies, between the periods 1996-2011. The study provides evidence that different performance measures have different effect on the pay for performance sensitivity. The study further argues that a restriction on the use of performance related elements would be a step to curbing excessive executive remuneration.