New Studies Assess CEO Salary Levels in Europe and Asia: MBA News |

New Studies Assess CEO Salary Levels in Europe and Asia: MBA News

By Tim Dhoul

Updated September 5, 2019 Updated September 5, 2019

Are CEO salary levels higher than they should be? What are the underlying factors that determine how much a company leader walks away with at the end of the year?

These are the questions that a professor at Singapore’s Nanyang Business School has been seeking to answer in a study of more than 500 CEOs of listed companies across the east Asian countries of Indonesia, Malaysia, the Philippines, Singapore, Thailand, Hong Kong and Taiwan.

Over an eight-year period, Lee Kin Wai, an accounting professor at Nanyang Business School found an (understandable) level of variance between CEO salary levels spanning different company sizes and industries – the mean CEO salary was US$2.9 million, while the median figure was US$1.6 million.

Nanyang Business School professor pinpoints effect of strong corporate governance

He also found that where a company’s corporate government structure is weaker, CEO salary levels tend to be higher.

Examples of weak corporate governance, such as shortcomings in a board’s independence or no separation between CEO and chairman positions, resulted in CEO salaries that were between 9% and 17% higher than those with adequate structures.

At the same time, the Nanyang Business School professor found that employing stronger corporate governance practices - from appointing independent directors to a compensation committee, to maintaining higher levels of external equity ownership – had the effect of curbing excessive CEO salaries and bringing them more in line with a company’s performance. 

“Strong governance structures appear to constrain the ability of the CEO to dominate the pay-setting process for his [or her] personal benefit,” Lee Kin Wai writes in The Business Times, adding that an excessive CEO salary level caused by weaker structures could damage a company’s future performance because it is symptomatic of a conflict of interest between managers and shareholders.

CEOs in Germany make more says Vlerick Business School study

In Europe, meanwhile, CEOs of big firms (those with assets over €5 billion or c.US$6 billion) in Germany were for the first time found to earn a fraction more than their counterparts in the UK, in an annual study carried out at Vlerick Business School.

Germany’s median figure for total compensation, at €3.44 million (c.US$4.09 million), surpassed the UK’s €3.40 million (c.US$4.04 million) by around US$50k in the highest bracket of CEO salaries, attributable to the greater number of pay rises seen in Germany over the past year.

However, when companies with assets worth under €1 billion (c.US$1.2 billion) were analyzed, the best-paid CEOs were still to be found in the UK.

In total, the Vlerick Business School study surveyed 512 companies across the UK, Germany, France, Belgium and The Netherlands, focusing on pay developments in the past three years.

Xavier Baeten, a management practice professor at Vlerick Business School, underlined how the variance seen between CEO salary levels in Europe can be linked to a company’s location as well as its size and industry.

“Company size is the most important factor determining the level of CEO pay. However, the structure of the pay, i.e. proportion of fixed pay and design of variable pay, is mainly driven by the country in which the firm is located. For this, legislation and national cultures play an important role and judging by the pay discrepancies, the idea of a ‘unified Europe’ seems to be a distant dream,” Baeten argues in a press release.

As much as 67% of a CEO’s total pay in the UK is variable remuneration (defined as a sum of short-term and long-term incentives), whereas the equivalent figure for France is only 34%, according to Vlerick Business School’s data. 

Indeed, the report concludes that the trend towards corporate social responsibility (CSR) and sustainability among companies is yet to be reflected in the criteria that determine variable pay. When assessing how the companies included drew up their bonuses, it was found that just 16% used (or also used) social indicators and only 14% used (or also used) environmental indicators, with 78% using profitability indicators.

Economic factors behind CEO salaries

The research of Nanyang Business School’s Lee Kin Wai, published in The International Journal of Business, also looked at some of the underlying economic factors that determine CEO salaries in east Asia.

As well as being tied to a company’s nature, in terms of size and the number of different operations carried out, Lee found a few other factors that tend to bring in more money for the CEO:

  • Where a company has largely intangible assets with a greater onus on human capital, there is a stronger link to managerial talent in securing high growth and therefore, higher CEO salaries can be found. For example, in R&D firms.
  • Companies operating in a volatile or high-risk business environment tend to pay higher CEO salary levels.
  • Two popular indicators of company performance - profitability and stock return performance - do positively impact on CEO salary.

This article was originally published in January 2015 . It was last updated in September 2019

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Written by

Tim is a writer with a background in consumer journalism and charity communications. He trained as a journalist in the UK and holds degrees in history (BA) and Latin American studies (MA).

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