8/10/2019 Comparison Between US and UK Executive Pay
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Comparison between US and UKs Executive Pay
Executive compensation in both the UK and the US contain the
same basic
elements. CEOs in both countries receive base salaries and are
eligible to receive
annual bonuses usually based on accounting performance. CEOs in
both
countries typically receive stock options, and can also receive
restricted stock. n
the US, restricted stock grants typically vest !ith the passage
of time but not
!ith performance criteria. n the UK, by contrast, the vesting of
restricted stock is
typically tied to the attainment of certain performance
ob"ectives.
#esearch has suggested that US pay is $too high% and that CEOs
are able to
exploit existing governance arrangements and extract rents
&'ebchuk and (ried,
)**+ 'ebchuk, (ried, and -alker, )**). /ccording to Conyon et al
&)**0, US
CEO pay !as 123 higher than UK CEO pay in )**1, as compared to
about 4403
higher in 4556 and US CEO incentives in )**1 !ere about 6.7
times higher than
UK CEO incentives, as compared to 41.+ times higher in 4556.
8hese narro!ing
di9erences over time result from substantial increases in UK pay
and incentives
and :at US pay and incentives. ;o!ever, despite these increases
in UK
incentives, US CEOs still hold signiurphy &)*** argue that
the di9erences could be largely
attributed to greater stock option a!ards in the US arising
from
institutional and cultural acceptance of e=uity pay in the US
vis?@?vis the
UK. Consistent !ith this explanation, /bo!d and Kaplan &4555
examine
survey pay estimates from 8o!ers Aerrin from 457+ to 4550 and
urphy &)**) andBensen, >urphy and -ruck &)**+, have
argued that US compensation
committees under?appreciate the full cost of options, and as a
result
overpay executives !ith option grants.
). / related explanation is that pay?related governance problems
are more
severe in the US. 'y this explanation, US
8/10/2019 Comparison Between US and UK Executive Pay
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and >urphy brie:y consider, but dismiss, the e=uilibrium
explanation that
US executives have larger incentives and therefore larger
pay.
Conyon et al &)**0 concluded that critics of high US
executive pay should give
greater consideration to the incentives borne by US CEOs and the
risk premiums
that executives are likely to re=uire to bear these incentives.
Or stated another
!ay, if critics believe that the level of US CEO pay is too
high, they also might
consider !hether they !ould accept lo!er UK?style incentives as
a trade?o9 for
reductions in pay.
