A Study of Directors' Remuneration in Thirty‐Eight Large Companies

Are directors remunerated as administrators or entrepreneurs? The theory of finance suggests that the objective of the firm is to maximise shareholder wealth or the current market value of the firm. Company law informs us that directors are appointed to manage the business on behalf of shareholders. However, a great deal of research suggests that the separation of ownership by shareholders and control by directors enables the managers of large companies to pursue objectives other than maximisation of shareholder wealth. This study attempts to relate selected financial variables to the amount of directors' remuneration as disclosed in published accounts. Our general conclusion is that managerial compensation is determined by the size of the firm rather than its accounting profits or market value.