Determinants of CEO compensation: evidence from Pakistan
ISSN: 1472-0701
Article publication date: 11 March 2022
Issue publication date: 27 July 2022
Abstract
Purpose
The purpose of this paper is to investigate the impact of firm-specific (i.e. firm size, profitability, leverage, dividend, growth opportunities, management quality and firm age) and country-specific (i.e., gross domestic product [GDP] growth) variables on compensation/remuneration offered to chief executive officers (CEOs) working in different industries of Pakistan.
Design/methodology/approach
Panel data techniques, namely, pooled ordinary least squares, fixed effects and random effects methods are used to estimate the results. Moreover, Hausman test is used to choose which estimation method, either fixed effects or random effects, is better to explain the results.
Findings
Firm size, profitability, leverage, growth opportunities and age are some important firm-specific factors that have mixed (i.e. positive/negative) impact on CEO compensation in different industries. Variations in results are due to industry dynamics. However, it is important to mention that three key variables, namely, dividend, management quality and GDP growth have shown consistent positive impact on CEO compensation in most of the industries. In sum, results show that firm-specific and country-specific variables have material effects on CEO compensation. Moreover, results are found consistent with the predictions of agency theory and human capital theory.
Practical implications
The authors are sure that findings of this study provide some support to the board of directors to determine the pay slice for CEOs. Moreover, findings provide support to the regulatory authorities in formulating mechanisms to determine the compensation package for CEOs working in different industries and to improve the Code of Corporate Governance.
Originality/value
To the best of the authors’ knowledge, no empirical study in Pakistan has yet estimated the effects of firm-specific and country-specific variables on compensation offered to CEOs working in different industries. Thus, industry-wise analysis provides some new insights to the decision-makers and lays some foundation upon which a more detail analysis could be based.
Keywords
Acknowledgements
Authors are grateful to the Chief Editor and Associate Editor of the Journal for their valuable comments and suggestions. Moreover, they are thankful to the anonymous reviewers for their valuable input/suggestions that have substantially improved the quality of the manuscript.
Citation
Khursheed, A. and Sheikh, N.A. (2022), "Determinants of CEO compensation: evidence from Pakistan", Corporate Governance, Vol. 22 No. 6, pp. 1222-1242. https://doi.org/10.1108/CG-06-2020-0218
Publisher
:Emerald Publishing Limited
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