African Journal of Business Management Vol. 5(22), pp. 9164-9179, 30 September, 2011 Available online at http://www.academicjournals.org/AJBM DOI: 10.5897/AJBM11.299 ISSN 1993-8233 ©2011 Academic Journals Full Length Research Paper Corporate governance issues and director compensation structure in Spanish companies Montserrat Manzaneque 1 *, Elena Merino 2 and Regino Banegas 1 1 Department of Business Administration, University of Castilla-La Mancha, Faculty of Social Sciences, Avda. de los Alfares, 44, 16002 Cuenca, Spain. 2 Department of Business Administration, University of Castilla-La Mancha, Faculty of Law and Social Sciences, Ronda de Toledo, s/n, 13071 Ciudad Real, Spain. Accepted 15 June, 2011 The absence or failure of some mechanisms of corporate governance facilitates to board members on the possibility of establishing a reward system more suitable to their own personal interests rather than to those of investors. Nowadays, this problem has intensified the lack of investors confidence in the members of the board of directors, whose payment levels have been criticized, especially over the last few years. In this context, this study aims to verify empirically the relationship between the characteristics of boards of directors and the level and structure of compensation of directors in Spain, in order to analyze its significance in the control of salaries. With a view to testing this hypothesis, we selected a sample of 76 listed Spanish corporations for the period 2004-2009. The results of this work reveal that control mechanisms like the separation of the figures of the chairman and the chief executive officer (CEO), the shareholding of board members, and the percentage of independent directors were found to be significant in reducing the levels of remuneration to the members of the board, specifically, cash payments received by them. Therefore, the characteristics of the board may influence their own remuneration, particularly in an ownership concentration context. Key words: Directors compensation, board of director, data panel analysis, corporate governance. INTRODUCTION Cases like Enron and American International Group (AIG) have questioned the behaviour of a number of boards of directors in relation to their performance in their function of supervision and control, among other things, over their own remuneration. Proof of such behaviour is that, in some of these cases, the salaries received by directors came from artificially obtained benefits at the same time that these corporations were facing financial and economic difficulties or, even worse, they were bankrupt (Ingley and Walt, 2005). *Corresponding author. E-mail: Montserrat.MLizano@uclm.es Tel: 00 34 969 179 100, Fax: 00 34 969 179 107. . Abbreviations: AIG, American International Group; CEO, Chief Executive Officer; ROA, Return on Assets; PPC, Percentage of Board Ownership; NMCA, size of board; OTS, Percentage of Outside Directors; PCE, Chairman of board and CEO; SIBE, Spanish Computerized Trading System. In this sense, there is a controversial debate about the reasonableness of the compensation received by directors. It is a sensitive issue that gives rise to all sorts of interpretations regarding to the effectiveness of board of directors in their function as supervisor and controller over the management. To avoid this situation, recent regulatory attempts to control the opportunistic behaviour of the directors have been oriented primarily towards increasing the transparency of information regarding to board’s compensation and the inclusion of recommenda- tions about the structure and composition of this remune- ration 1 , as well as strengthening of corporate control mechanisms based on the characteristics of the board of 1 In Europe, the European Commission published a recommendation in relation to the remuneration of directors of listed companies (3177/2009/CE). In Spain, on the one hand, the Spanish Securities Markets Commission (CNMV) issued a consultation on proposed amendments to the Unified Code of Corporate Governance (2006) applicable to Spanish listed companies, taking into consideration the above recommendations proposed by the EU. On the other hand, the inclusion in Art 25 of the Draft Law on Sustainable Economy of an