Executive Compensation in UK Property Companies

This paper addresses the drivers of executive compensation for a unique sample of UK property companies. The empirical results indicate that company size is the most important variable in explaining the level of executive compensation. Besides that, absolute share performance is significant in explaining both cash and long-term compensation, while measures for company outperformance over the real estate sector and the UK stock market are less powerful in explaining the level of executive compensation. Furthermore, the use of alternative monitoring mechanisms seems to be efficient, as the preference for long-term incentivisation implemented by institutional shareholders, outside directors and debtholders leads to an increased pay-performance sensitivity. Furthermore, the presence of large blockholders amongst investors leads to lower levels of compensation and a relatively strong pay-performance sensitivity. Concerning the influence of sector-specific variables, we find that diversification of property investments leads to lower levels of executive compensation, whereas investing in high-quality property is related to a higher compensation level.