Study highlights differences between British, American boards

Dec 31, 2013
<p>A study says boards with American CEOs are characterized by a positive dispersion-performance relationship -- Boards with British CEOs do not.</p>

While the US and UK are each considered at the core of the Anglo-Saxon governance system, new research points out key differences in how boards operate when it comes to the effectiveness of executive board remuneration.

A University of Bath study of 781 firms over the years 2000 – 2008 finds that in contrast with US counterparts, British companies display a negative dispersion-performance relationship, ie, the greater the compensation dispersion, the poorer firm performance. The study, Gentlemen do not talk about money: Remuneration dispersion and firm performance relationship on British Boards, notes that boards with American CEOs or at least 30 percent of American nationality non-CEO executives are characterized by a positive dispersion-performance relationship.

‘British boards tend to be less hierarchical than US ones,’ notes study author Ania Zalewska, professor of finance at the University of Bath. ‘Consequently, they have a different response to remuneration. We should be careful about generalizing the US experience to other governance cultures.’

Zalewska points out her research also highlights the potential costs and benefits of board diversity. ‘You can’t say you automatically benefit from diversity,’ says Zalewska. ‘You only will if you create motivational structures that take into account individual’s culturally-shaped attitudes towards how they and others are financially rewarded.’

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