Business Review

Multidisciplinary Literature Review

Remuneration and Executive Behaviour

Authors

This report was written for APG by Mattia Branca (MBA 2008) and Sandra Imelmann (MBA 2009) under the supervision of Andrew Likierman, Dean of the London Business School and Professor of Management Practice in Accounting. This report was completed in September 2009 and published by APG in February 2010.

Foreword

Executive remuneration has been one of the hottest topics in 2009. Much of the public debate has been focussing on so-called ‘perverse incentives’ which have become almost synonymous with what is wrong with the financial system at large. However, the root causes of the financial crisis are clearly much broader than this as the various public inquiries are seeking to establish. Calls for change are abundant and here to stay for some time to come. Amidst the cacophony of voices the one calling upon shareholders and asset owners to act responsibly stands out clearly, a challenge and a duty that APG has long been taking on. As a large institutional investor, APG is directly involved with the debate on governance and remuneration through its engagement with its investee companies and policy setters. We sometimes fear that the present discussion about board remuneration may overlook important facts, and hence we felt it necessary to look further into the link between remuneration and executive behaviour by tapping into current academic knowledge. To guide us trough this territory, we commissioned the London Business School to conduct a literature review on ‘Executive remuneration and behaviour’. We would like to thank Professor Likierman, Mattia Branca and Sandra Imelmann for their work, and would like to share this excellent review that we believe provides some very valuable insights with fellow investors, companies, policy makers and anyone else who is interested in this debate. We hope that you find this study interesting and would like to hear from you if you have...