Data sources

The United States, United Kingdom, and Canada are currently the only countries that require detailed disclosure on the compensation practices for individual top corporate executives.4 Disclosure rules for US executives were standardised and expanded in 1992 by the US Securities and Exchange Commission (SEC), and require details on share ownership, share options, and all components of compensation for the top five corporate executives. Disclosure rules in the United Kingdom were significantly expanded in recent years following the Greenbury (1995) and Hampel (1998) reports, and require disclosure of data comparable to those available for US executives (including previously unavailable details on share option grants and holdings).5 Although there are a variety of 'secondary sources' for compensation data in the two countries, the primary data source is the annual report in the United Kingdom, and the proxy statement in the United States.6

Although we offer some longitudinal comparisons, our analysis is based primarily on 1997 fiscal-year data, since this was the first year covered by the new UK disclosure requirements.The UK data analysed in this paper are drawn directly from the annual reports for the 510 largest companies (ranked by market capitalisation). The pay and ownership data are matched to Datastream data on company size, industry, and performance.Together, these companies account for virtually all (98%) of the market capitalisation of the entire UK stock market. The fiscal 1997 US compensation and company data are extracted from Standard and Poor's (S&P's) Compustat's 'ExecuComp' database, which includes proxy-statement data for 1,666 top executives in the S&P 500, the S&P Mid-Cap 400, the S&P Small-Cap 600, and other supplemental S&P indices. For each country and company, we identified the CEO (or most senior executive officer), and collected information on share ownership, current and prior option grants, salaries, annual bonuses, benefits, and LTIP cash and share awards.

The largest US companies are considerably larger than the largest UK companies, and our combination of large, mid, and small-cap US companies is meant to provide a distribution of US firms similar to the UK distribution. Nonetheless, our sample of US firms remains somewhat larger, with mean (median) 1997 market capitalisation of £3.4 billion (£790 million) in the United States, compared to £2.2 billion (£480 million) in the United Kingdom. Our results below include company size controls to adjust for systematic differences in size.

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