Executive compensation in Europe: Realized gains from stock-based pay

This paper adds to the empirical evidence on the extent to which the European executives are incentivized and rewarded by stock-based pay. It shows that stock-based compensation of CEOs in European listed firms is usually underestimated and it documents the heterogeneity among countries. We base our work on a sample of 303 large, publicly-traded companies listed in the S&P Europe 350 index from 11 European countries: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden and United Kingdom. Through analysing companies’ annual reports, we have hand-collected data on various elements of compensation of the company’s CEO in 2015, with an emphasis on the gains that executives actually realize from stock-based pay. We document that on average half of the total compensation of the European CEOs in our sample is stock-based, measured by actual realized gains. However, there are large differences between countries. Although in some European countries the majority of total compensation is stock-based, the proportions are still well below those that prevail in the United States. A comparison of realized gains measure of CEO compensation with the data based on fair value estimates shows that the latter underestimates the relevance of share-based pay, in the case of some countries dramatically. Our research findings add to the existing policy debate on transparency of remuneration policy and the link between pay and performance of corporate executives in the EU. Based on our work we propose that the Commission should insist that the companies submit executive data in a standardized form that enables international comparisons, and, above all, uses realized gains measures.