The composition of the remuneration committee and the vertical pay gap: the role of proprietary directors in Spain

Abstract

PurposeThis study investigates whether the proportion of proprietary directors (blockholders or their representatives) on the board's remuneration committee influences vertical pay inequality in Spanish listed companies and whether this relationship can be conditioned by the concentration of ownership.Design/methodology/approachThe sample contains information on the individual compensation of 1048 directors of 57 Spanish listed firms during the period 2013–2018 making up an unbalanced panel with 3565 observations. Panel data regressions are used to study how the presence of proprietary directors on the remuneration committee influences the remuneration of directors, focusing not on their absolute remuneration levels, but rather on their relationship to the average remuneration of the organization's employees (as a measure of vertical pay inequality within the company). The authors also investigate whether this relationship is conditioned by firm ownership concentration.FindingsThe results indicate that the presence of proprietary directors on the remuneration committee acts as a mechanism to reduce vertical pay inequality, even in the context of high ownership concentration.Originality/valueUnlike the majority of previous research dedicated to the independence of the remuneration committee, this study focuses on the role played by proprietary directors. The results help elucidate the importance of proprietary directors to properly monitor and restrain directors' compensation in contexts of high ownership concentration.