Total Board Compensation, Governance and Performance of Spanish Listed Companies

In this paper we present empirical evidence on the relationship between board remuneration of a sample of large Spanish companies and a set of explanatory variables such as performance and size of the company. The objective is to provide additional empirical evidence based on the agency theory for the Spanish institutional context, which differs from most 'Anglo-Saxon' model studies. We focus on the impact of a company's governance structure on the relationship between pay and performance. Specifically, we consider ownership concentration and firm leverage as key determinants of the board-shareholders relationship. Our results confirm the positive relationship between board remuneration and company performance, which is stronger for book values than for stock market measures. Industry performance also explains the remuneration and provides useful information for evaluating board behaviour. Company size is also related to board remuneration and affects the pay-performance relationship, although it is not relevant when we use an elasticity approach. Finally, the governance structure of companies is relevant when explaining the power of the compensation-performance relationship, and differences between the impact of ownership concentration and firm leverage on this relationship are found. Copyright Fondazione Giacomo Brodolini and Blackwell Publishing Ltd 2003.