The effects of company risk, founders' characteristics and corporate governance on executive incentive schemes in UK initial public offerings

Combining the agency perspective, resource-based view and upper echelon research, this paper examines factors affecting the implementation of equity based incentive schemes in initial public offerings (IPOs). In line with agency research, the probability of equity-based incentives is negatively associated with the IPO firm’s riskiness. The paper shows that performance-related incentive schemes are negatively associated with share ownership and board power of the IPO’s founding directors. Large-block share ownership is positively associated with the probability of conditional incentive schemes. However, board independence and non-executive directors’ interests do not have any effects on “toughness” of executive compensation. The paper suggests a number of avenues for a future analysis of governance development process in “threshold” firms.