Management Compensation in the Netherlands: Theory, Evidence, and Best Practice
Volume: 4 Topics in Corporate Finance
Price: € 12.50
Management compensation is the subject of intense debate both in academics and in the popular media. Many groups - including labor unions, shareholders and government officials - claim that top executives are paid excessively. But is this the case? And, even if so, is the Dutch practice not merely dictated by international development?
This publication of the Amsterdam Center for Corporate Finance sheds light on the ongoing debate. Professor Todd Milbourn evaluates the Dutch practice and draws policy implications. Hereto he provides an overview of the theoretical underpinnings of management compensation as well as a discussion of the empirical evidence. Milbourn concludes that management compensation contracts should include a significant pay for performance element. However, many factors affect the optimal level and design of incentives given to management. Balancing the mix of fixed and variable pay is an extremely important yet delicate issue.
Milbourn shows that management pay in the Netherlands has converged to international practices over the last couple of years. However, design and implementation deserve further scrutiny. Several policy implications for the Netherlands conclude this report.