The Role of the Law in the Determination of Executive Remuneration

Abstract

Executive remuneration has been a contentious issue in the UK since the early 1990s. The lack of link between executive pay and company performance has been the shareholder’s concern. The law makes no provisions on how executive remuneration should be determine, rather it takes a corrective approach when executive pay levels are high through remuneration disclosure requirement, shareholder vote, and other remedies available to the shareholders. The effectiveness of the role of the law to influence executive remuneration pay setting is examined in this study. The study found that firstly, disclosure requirements tends to favour high executive remuneration levels. Secondly, shareholders are not using the voting powers vested on them to influence the remuneration setting process. Finally, the courts are reluctant to interfere in executive remuneration setting process. This indicates that the role of the law is unable to influence the pay setting process and curb excessive executive pay