Relationship between directors’ compensation and business performance: One issue to debate

Abstract

The compensation received by directors has attracted the interest on good corporate governance practices related to remuneration matters, with particular emphasis on the need to link the remuneration of directors and the business performance. However, the question remains whether this relationship is being implemented or, on the contrary, we must address through other measures that encourage directors’ remunerations more in line with the shareholders’ interests. The analysis of a sample of 76 Spanish firms over the period 2004-2009 shows the existence of this relationship if book based indicators are taken as a reference. However, this relation does not exist with those indicators made according to market data. These results should make researchers and regulators think about the need for new ways of remuneration that convey confidence to compensation systems.