Globalization and Executive Pay in the Netherlands

 

 
  • Growth in executive pay highest in publically listed companies.
  • High paid executive not more mobile than 10 years ago.
  • This questions the argument often heard:  we have to pay more to keep good people.

 

Since the late 1990s executive pay has grown more than the average wage income in the Netherlands. Executives of large nonfinancial, non-listed companies earned more because their companies increased in size. Listed company executives saw their pay checks increase even more but this was only partly explained by increased company size.

 

These are the main conclusions in a recently published report by the Netherlands Bureau for Economic Policy Analysis (CPB).

 

Since the late 1990s, the wage share of the 0.1% of Dutch workers with the highest labor income has increased from 1.3% to 2.0%. This trend started earlier in other Western-European countries than in the Netherlands. The income share of the 0.1% of the population with the highest income remains small when compared to other countries. In Germany the wage share of the top earners reaped 4% of total wages, in the US the same group pulled in 8%.

 

This CPB Document analyses the causes of the growth of top wages in the Netherlands. The pay of top executives working for about 600 large firms in the Netherlands grew by 5.8% nominally per year between 1999 and 2005 on average. Of this growth - after a deduction of 2.9 %-points inflation - 2.6 %-points of this pay growth can be explained by an increase in average firm size, and 0.2 %-points by the ageing of executives.

 

Executive pay growth of listed companies was 8.9% per year which is higher than average executive pay growth. 4.8 %-points of this growth can be explained by inflation, firm growth and ageing; 3.9 %-points remain unexplained. On average, listed companies pay their executives 25% to 52% more than comparable companies without a listing on the stock market.

 

The pay difference between firms with and without an Anglo-Saxon owner has diminished. Companies with an Anglo-Saxon owner pay their executives 20% more than comparable companies with an owner from a non-Anglo-Saxon country. Executive pay growth among firms with an Anglo-Saxon owner is 4% per year, which is lower than average. The share of foreign executives in the Netherlands remains constant on average, although it declines for firms with an Anglo-Saxon owner. Also the average term of a top executive has remained constant. These findings are not in sync with the generally accepted premise that the market for top executives is an increasingly international one.  The influence of globalization on top executive incomes occurs primarily via international competition in product markets and not via internationalization of the labor markets.

 

The full report (in Dutch only) is available at: http://www.cpb.nl/eng/pub/cpbreeksen/document/199/doc199.pdf