Board Remuneration, Performance, and Corporate Governance in Large Spanish 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 contrast the existing evidence based on the agency theory in an institutional environment with differences from the literature. We focus on the impact of company’s governance structure on the relation between pay and performance. Specifically we consider the ownership concentration and the firm leverage as key determinat 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 to evaluate board behaviour. Company size is also related to board remuneration, and affects the pay-performance relationship, although 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. JEL Classification: G3, J33