Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Do US Market Interactions Affect CEO Pay? Evidence from UK Companies
    23 Mar 2011Working Paper Summaries

    Do US Market Interactions Affect CEO Pay? Evidence from UK Companies

    by Joseph J. Gerakos, Joseph D. Piotroski and Suraj Srinivasan
    CEOs of UK firms receive higher total compensation if their companies have interactions with US product, capital, and labor markets. Moreover, the compensation package is often adopted from American-style arrangements, such as the use of incentive-based pay. Researchers Joseph J. Gerakos (University of Chicago), Joseph D. Piotroski (Stanford), and Suraj Srinivasan (Harvard Business School) analyzed data on the compensation practices of 416 publicly traded UK firms over the period 2002 to 2007. Key concepts include:
    • The reason to compare similarity with the level and style of US pay is because CEOs of US companies typically are among the highest paid in the world.
    • The UK firms' interactions with US markets were measured on four variables: the relative importance of US sales to the firm, the level of prior US acquisition activity, the presence of a US exchange listing, and the US board experience of the firm's directors.
    • All four US market interaction variables correlated with greater pay, but only US operational activities (sales and acquisitions) were associated with pay similar to US-style contracts.
    • The increased compensation alleviates internal and external pay disparities arising from the presence of US operations and businesses, and compensates CEOs for bearing the additional risk and responsibility associated with exposure to foreign securities laws and legal environments.
    LinkedIn
    Email

    Author Abstract

    This paper examines the extent that interactions with U.S. markets impact the compensation practices of non-U.S. firms. Using a sample of large U.K. companies, we find that the total compensation of U.K. CEOs is positively related to the extent of the firm's interactions with U.S. markets, as captured by the percentage of total sales generated in the U.S., the presence of prior U.S. acquisition activity, the presence of a U.S. exchange listing, and CEO and director-level U.S. board experience. More importantly, we find that exposure to U.S. product markets is associated with the adoption of U.S.-style compensation arrangements (i.e., incentive-based pay packages). In contrast, we find no such association with exposures to other (non-U.S.) foreign product markets. Together, our evidence is consistent with U.S. market interactions impacting U.K. compensation practices through two mechanisms: 1) to alleviate internal and external pay disparities arising from the presence of U.S. operations and businesses (proxied by the percent U.S. sales and prior U.S. acquisitions) and 2) to compensate CEOs for bearing the additional risk and responsibility associated with exposure to foreign securities laws and legal environments (proxied by both U.S. and non-U.S. exchange listings).

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: January 2011
    • HBS Working Paper Number: 11-075
    • Faculty Unit(s): Accounting and Management
      Trending
        • 24 Jan 2023
        • Research & Ideas

        Passion at Work Is a Good Thing—But Only If Bosses Know How to Manage It

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

        • 10 Jan 2023
        • Research & Ideas

        How to Live Happier in 2023: Diversify Your Social Circle

    Suraj Srinivasan
    Suraj Srinivasan
    Philip J. Stomberg Professor of Business Administration
    Unit Head, Accounting and Management
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Human Resources
    • Wages
    • Globalization
    • Europe
    • North & Central America
    • United States

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College