CEO pay is a contentious topic that occupies significant amounts of board and investor time, and is one of the most-studied areas of corporate governance amongst academics. But little is known about the deliberations that take place within boards on how to pay the CEO. Nor about the factors that boards take into account in designing pay and which investors consider when deciding whether to approve CEO packages.

During a virtual event held in October 2021, Alex Edmans, Professor of Finance, and Academic Director of London Business School’s Centre for Corporate Governance (CCG) presented the key findings from his recent, “CEO Compensation: Evidence From the Field” [ Ссылка ]. Co-authored by Dr Tom Gosling, Executive Fellow, CCG and former Partner, PwC, and Dirk Jenter, Professor of Finance, London School of Economics, the paper reports the results of a survey of over 200 UK directors and 150 investors on how they design CEO pay packages: their objectives, the constraints they operate under, and the factors they take into account.

The study reveals striking differences of opinion between investors and directors. Investors generally believe that CEO pay is too high and that directors should be tougher in lowering pay and aligning it with shareholder returns. By contrast, directors believe that shareholder constraints prevent them from maximising long-term shareholder value. They feel that investors underestimate the complexity of attracting, retaining, and motivating talented CEOs. The authors highlighted a need for improved dialogue between directors and investors to try to find more common ground on this important issue.

The event was organised by CCG in partnership with the European Corporate Governance Institute. To find out more about CCG’s work on executive pay visit - [ Ссылка ]

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