eThesis - School of Business electronic theses

This is a comparative study on the differences in the use of CEO pay components in European Union countries. We will examine nine different countries across the European Union during a ten-year time period of 2005-2014. We aim to determine, whether the use of different pay components has been harmonized during our time period or if national differences can still be detected. In addition, we aim to find out, whether the corporate governance system the country belongs to and its different characteristics could explain differences in the use of CEO pay components.

In this research, we aim to determine the relative shares of fixed pay, short-term incentives, long-term incentives and equity-based pay out of CEO compensation. We will compare the relative shares of our nine countries and aim to find systematic differences in how the com-ponents are used. Also possible harmonization is studied. In addition to this, we will deter-mine if countries belonging to the same corporate governance system use the different pay components similarly. We will examine, if corporate governance systems affect how perfor-mance-dependent CEO compensation is in each country. Also, we aim to determine if the dif-ferences in the time horizon of economic relationships of each corporate governance system are reflected on the prominence of short-or long-term pay. In addition, we will examine if the importance of national stock markets in each corporate governance system affects, whether the CEOs are paid in cash or by granting them equity.

In our research, we found systematic differences in how EU countries use different CEO pay components. We found that also harmonization has taken place, but it has diminished the differences, rather than eliminated them altogether. The differences can be found not only between the different corporate governance systems, but also between countries belonging to the same system. In general, we found a link between the corporate governance systems and the relative share of fixed pay. However, a link between the corporate governance systems and the choice between short-and long-term pay was not detected. Thus, we found the time horizon of economic relationships not to dictate whether the countries use short-or long-term incentives. However, we did find the importance of national stock markets to affect the prom-inence of equity-based pay: the higher the importance of stock markets, the higher the rela-tive share of equity-based pay.