Top managers' compensation and governance in Spanish firms: Evidence and reflections

Abstract

In Spanish listed firms, taking into account the predominant modes of ownership structure, which are characterized by a high concentration of shares in the hands of a few shareholders who are strongly represented on the board of directors, it might suppose that there are strong stimulus for a close top managers' supervision and a straight interest alignment. However, the empirical evidence indicates the opposite, and this paradox needs to be explained within the theoretical framework of institutional theory. The high concentration of ownership and the high level of cross-holdings generate conflicting interests by those who have multiple roles as directors and top managers, suggesting that board's supervisory effectiveness may be compromised by social pressures in search of legitimacy. These features of Spanish firms are undermining governance mechanisms, and may explain the high pay levels, the low variable packages and, in general, the lack of connection between top managers' compensation and firm performance in comparison with those in other countries of Continental Europe.