To what extent do governance, government funding and chief executive officer characteristics influence executive compensation in U.K. charities? Insights from the social theory of agency

Nguyen, Tam Huy; Soobaroyen, Teerooven

Abstract

This paper draws on agency theory, as extended by the social theory of agency (STA) (Wiseman, Cuevas-Rodríguez & Gomez-Mejia, 2012), to examine the association between governance arrangements, reliance on government funding, chief executive officer (CEO) non-profit experience, and CEO compensation in the UK charity sector. We rely on a hand-collected data for the largest 240 charities and find that greater trustee board diversity (specifically gender and education diversity) and the existence of a remuneration or nomination committee are positively associated to CEO compensation. The results also show that a reliance on government funding and CEO's non-profit work experience, together with the presence of a finance/accounting expert on the audit committee are negatively associated with CEO compensation. The existence of an audit committee, internal audit function, use of specialist external auditor and CEO characteristics (gender, ethnicity and managerial experience) are not significant factors. Our findings are largely consistent with the STA's propositions. Specifically, executive compensation levels reflect the CEO's ability to work with a diverse board while a higher reliance on government funding signals the role of the State's pressures in moderating CEO compensation. Finally, in a context characterised by altruism and public benefit, financial rewards are not seen as the dominant 'value metric', resulting in lower compensation for CEOs previously working in the sector. Our findings have policy implications, specifically in relation to the role, composition and effectiveness of governance structures (e.g. trustee boards, audit and remuneration committees) in overseeing the design of executive compensation schemes within the charity sector.

Citation

Nguyen, T. H., & Soobaroyen, T. (2020). To what extent do governance, government funding and chief executive officer characteristics influence executive compensation in U.K. charities? Insights from the social theory of agency. Financial Accountability and Management, https://doi.org/10.1111/faam.12268

• Journal Article Type: Article
• Acceptance Date: Aug 20, 2020
• Online Publication Date: Sep 9, 2020
• Publication Date: Sep 9, 2020
• Deposit Date: Aug 26, 2020
• Publicly Available Date: Sep 14, 2020
• Journal: Financial Accountability & Management
• Print ISSN: 0267-4424
• Electronic ISSN: 1468-0408
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/faam.12268
• Keywords: CEO compensation; charity governance; board diversity; CEO characteristics; social theory of agency JEL code: M4
• Public URL: https://nottingham-repository.worktribe.com/output/4852667
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/faam.12268