Newspapers pay abundant attention to executive compensation. Systematic analyses of the attention paid to executive compensation in The Netherlands reveals that newspapers do not target the highest paid executives, do not target better or worse performing firms. They focus their attention only on a very few large corporations that already received attention in the past. In addition, past media attention is positively related with current compensation. These findings are the results of a study by Jordan Otten, assistant professor of the Rotterdam School of Management Erasmus University, in collaboration with Mercer. 

The study, titled "Media attention and executive pay in the Netherlands", addresses two main research questions. First, how selective are Dutch newspapers in their coverage on executive compensation? And second, what is the influence of past media attention on current pay practices? To address these questions, 2270 articles published by seven leading Dutch newspapers in the period between 1998- mid 2009 are analyzed.

Are newspapers biased in their coverage?

The results of the study show that newspapers are to some extent biased in their coverage. On the one hand, they are selective in their coverage first, because most of the attention is paid to a limited number of corporations. Especially the biggest firms in terms of sales, number of employees, total assets, or market capitalization operating in the financial, consumer goods and services industries receive most of the attention.(See graph 1 for a breakdown per industry). Second, the attention is distributed unevenly across corporations. The top 5% of corporations with the most attention receive 54% of the attention. The top 10% receive no less then 71%. In contrast, the top 5% and 10% of the companies with the least attention receive respectively 0.4% and 0.8% of the attention. Third and finally, newspapers focus their coverage on companies that they covered before. Companies that are currently covered on their pay practices have a six times bigger chance of having had attention in the past.

On the other hand however, newspapers are not selective when considering the performance of the corporation. No systematic relationships are found between the level of media attention and the performance of the companies covered. This implies that the media do neither focus their attention on better nor worse performing firms.

In addition, and arguably more remarkable, the levels of media attention companies receive for how much they pay their executives are also not systematically related to the actual levels or increases in pay of their executives. Newspapers do not focus their attention on the highest paid executives and also not on executives with the biggest increases in pay. These results are robust for absolute levels and increases in pay, as well as for market adjusted levels and increases, and also for the different components of the pay mix (salary, cash bonuses, and equity related pay). This suggests that the level of media attention a given company receives can neither be explained by the composition of the pay mix nor by the levels nor increases of the various pay components. What does play a role to explain media attention for executive pay is the size of the corporation and the media attention received in the past. Most likely, journalists focus more on companies that they covered before, simply because they have more knowledge about these firms. Thereby, bigger companies receive more media attention, also on other issues than executive compensation. They are better known by the general public, making articles covering these firms arguably more interesting for a wider audience.

What is the influence of media attention?

The results of the study furthermore show that past media attention is positively related with especially cash compensation (i.e. salary and cash bonus). More attention by newspapers for specific companies in the past is associated with higher current pay levels at these companies. Furthermore, higher levels of past media coverage is positively related with bigger increases in pay, especially with the cash compensation of CEOs. The influence of past media on the pay mix is limited to the proportion of total bonus over total pay. Past media attention limits the importance of total bonuses as part of total pay. It seems however that this effect is the result of a positive relationship with total pay and not with negative relationship with total bonuses.

The explanation given for these results is based on the findings that newspapers do not systematically focus on the highest paid executives or CEOs, neither in absolute nor relative terms. Media attention for executive compensation and disclosure regulations of pay in annual reports make also executives themselves more responsive to what is paid outside their own corporation. Despite the media attention for their pay, these executives are aware that they are not the best paid executives. They may use the information on other executive's pay published in newspapers and annual reports to (re-)start negotiations about their own pay.