Executive remuneration, executive dismissal and institutional shareholdings

This paper examines the links between executive pay, executive dismissals and company characteristics. Specific attention is paid to the role of institutional investors and non-executive directors in influencing pay/performance relationships. The analysis shows that in the UK electrical engineering industry in the period 1989-94 pay was positively related to both shareholder welfare measures (profitability and share returns) and to size but that the latter was the most significant influence. The probability of executive dismissal was higher the smaller was company size and the lower was profitability. The presence or absence of institutions as major shareholders made no appreciable difference to either the level of pay or the likelihood of dismissal, or the sensitivity of either to shareholder performance or size. (C) 1997 Published by Elsevier Science B.V.