Does the compensation level of outside director depend on its personal profile? Some evidence from UK

Combining human capital theory and equity theory, we developed and tested a model in which the outside directors’ total cash compensation is related to the outsider’s profile, as well as to the board and firm characteristics. Consistent with our model, characteristics of the outsider’s profile, in terms of his/her role and responsibility, meeting activities and length of service, are relevant. Only the director’s popularity, as a part of his/her human capital, has a significant effect on his/her compensation. Our empirical results confirm the necessity to create a stronger link between the remuneration policies of the outsider directors and their contribution in a board, in terms of human capital. The remuneration policies adopted by firms should be linked to practices on corporate governance useful for helping outsiders contribute confidently to their work of the board and receive ongoing support and information so they can develop their understanding of the total environment within they work. Then, we suggest having recourse to qualifications and professional skills as well as to specific training or board induction programmes defined by firms themselves. Finally, the Combined Code should promote the adoption and spreading of such practices on market.