Executive Remuneration and the Payout Decision

Résumé En

We analyze the payout channel choice of listed UK firms and examine whether the choice between dividends, share repurchases, a combination of payout channels, or complete earnings retention is affected by investor sentiment, taxation, major shareholder ownership, and in particular the CEO's compensation package. The payout choice can have an immediate effect on the value of the CEO's stock options and restricted stock, whereby anticipated dividends drive down the value of her equity-based pay if it is not dividend-protected whereas share repurchases may have a positive impact. We use a quantile regression analysis to examine various payout scenarios as well as a nested logit model which studies payout choice conditional on changing payout levels. We find that it is the CEO's personal wealth as reflected by her compensation package rather than shareholder preferences which has the strongest impact on the firm's payout policy.