This paper sets out the results of interview-based research into the way in
which executive directors’ remuneration is set in two UK utilities. Although the
subject of executive directors’ remuneration has been widely researched, little
work has addressed the question ‘how is the directors’ remuneration
determined?’. This study addresses that research gap through direct and in-depth
questioning of key people involved in the remuneration-setting process. Research
was carried out at two UK utilities, both listed in the FTSE 350. In each
company, interviews were conducted individually with the key executives and non
executives involved in the remuneration-setting process, and with the
compensation consultants who acted as their advisors, to determine the processes
undertaken and the factors affecting their decisions. The interviews were semi
structured, in order to enable open discussion and ensure a wide-ranging
discussion of the protagonists’ actions and reasoning. The findings of the
research project reflected both economic and social-psychological theories
adopted in the executive remuneration literature. The interviews showed that the
level and structure of remuneration were clearly influenced by ‘the market’,
although issues were surfaced about the problems of determining a suitable
comparator market. Institutional theory influences were identified in the level
and structure of the pay, and the way trends in practices influenced the
protagonists. Furthermore, the way in which the companies’ policies were
tailored to their corporate strategies was consistent with
