Directors' pay and turnover: An application to a sample of large UK firms

This paper examines the operation of the UK managerial labour market. We te st the twin agency predictions that directors' pay is positively related to corporate performance and CEO turnover is negatively associated with firm profitability. We find that (i) the panel data econometric evidence reveals a significant and positive correlation between directors' pay, company per formance and size, (ii) the CEO turnover model predicts a negative, and sig nificant, association with pre-dated shareholder returns: the data is consi stent with the view that CEOs are disciplined by the threat of dismissal, ( iii) boardroom governance factors (e.g. proportion of non-executives and bo ard size) are only of some importance in the CEO succession process.