Search results

Outlines previous research on the links between board composition, firm performance and chief executive officer (CEO) compensation, and presents a study of CEO pay‐performance sensitivity, board independence and performance in the US banking industry. Explains the methodology and presents the results, suggesting that for large bank holding companies with average performance, increased board independence reduces pay‐performance sensitivity because internal monitoring is sufficient without extra alignment incentives. Adds that when performance is poor this no longer holds true and compensation contracts are then used to align the interests of managers and shareholders.

The purpose of this paper is to investigate the relationship between Chief Executive Officers’ (CEOs) compensation and corporate governance practices of publicly listed companies in New Zealand for the period 2005-2010.

Prior literature argues that corporate governance systems and structures are heterogeneous, that is, corporate governance mechanisms that are important tend to be specific to a country and its institutional structures. The two corporate governance mechanisms most important for monitoring CEO compensation are ownership structure and board structure. The authors use a generalised least squares regression estimation technique to examine the effect ownership structure and board structure has on CEO compensation, and examine whether ownership structure, board structure, CEO and director compensation have an effect on company performance.

After controlling for size, performance, industry and year effects, the authors report that internal features rather than external features of corporate governance practices influence CEO compensation. Companies that have their CEO on the board pay them more than those who do not sit on the board, suggesting CEOs on boards have power to influence board decisions and therefore boards become less effective in monitoring CEO compensation in the New Zealand context. Companies that pay their directors more tend to reward their CEOs more as well, thus supporting the managerial entrenchment hypothesis.

The results confirm the findings reported in prior studies that institutional investors are ineffective in monitoring managerial decisions and their focus is on decisions that benefit them on a short-term basis.

The findings indicate that although the proportion of independent directors on boards does not significantly influence CEO compensation, it does indicate that outside directors are passive and are no more effective than insiders when it comes to the oversight and supervision of CEO compensation.

Being a small and open financial market with many small- and medium-sized listed companies, New Zealand differs from large economies such as the UK and the USA in the sense that CEOs in New Zealand tend to be closely connected to each other. As such, the relationship between pay-performance for New Zealand is found to be different from those reported for the UK and the USA. In New Zealand, the proportion of institutional and/or block shareholders is positively associated with CEO compensation and negatively associated with company performance, suggesting that it is not an effective mechanism for monitoring CEO compensation.

The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance.

The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018.

The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices.

The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run.

This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

The purpose of this study is to investigate the cross-sectional associations between growth options and the peer pay–performance sensitivity of CEO compensation.

This study includes analytical analysis and multivariable regression analysis.

It is predicted in this study that there is a non-linear concave relation between peer pay–performance sensitivity and a firm’s growth options. Results based on the executive compensation data from ExecuComp are consistent with the hypothesis presented in this study.

Future scholars need to consider the non-linear impact of growth options on peer pay–performance sensitivity when they conduct research related to CEO compensation by differentiating the company’s growth options to be at a low, medium and high level. In an industry, when a compensation committee decides on the peers for performance comparison purposes, the committee needs to make sure that the peer firms they select have similar operational environments, for example, they face similar growth options (e.g. low, medium or high) and idiosyncratic variances.

This study contributes to the managerial compensation literature by revealing the important role growth options, as well as idiosyncratic variances, play on peer pay–performance sensitivity. The results of this study have implications for both future researchers as well as industrial practitioners.

It gives guidance on designing CEO compensation contracts.

This is an original work from the coauthors listed on this study.

This study aims to examine whether chief executive officer (CEO) pay-performance sensitivity to shareholder wealth is related to the use of non-financial performance measures in incentive contracts.

Using hand-collected performance measure data in a sample of S&P 500 firms across the period 1994–2010, this study investigates the sensitivity of CEO bonus and cash pay to shareholder wealth of firms that use non-financial performance (NFPM) measures of varying types and contractual weights in their bonus contracts along with financial measures (NFPM firms) in comparison to that of firms using financial measures only (FPM firms).

This study finds evidence that the pay-performance sensitivity is stronger in NFPM firms than in FPM firms. These results are driven by the use of CEO individual goals and operational efficiency. Furthermore, when using environmental, social and governance factors, the pay-performance sensitivity is stronger in terms of accounting performance only. This study also finds that using NFPM enhances pay-performance sensitivity more as their contractual weights increase and as financial risk increases.

These findings are important to stakeholders, and especially regulators in understanding incentive effects of alternative performance measures. This study also sheds light on what types of non-financial measures are better in helping firms align CEOs’ incentives to shareholders’ interests.

This study contributes to prior research on benefits of non-financial information within the context of executive compensation. This study presents original results about the effects of contractual weights of non-financial measures and financial risk on CEO pay-performance sensitivity. This study also presents new insights regarding how different types of non-financial measures affect CEO pay-performance sensitivity.

The purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered.

The consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies.

Using a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance.

This study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.

Jensen and Murphy (1990) and others have found a small but statistically significant relationship between firm performance (as measured by change in shareholder wealth or firm profits) and executive compensation. In this study we investigate the pay‐ performance relationship further by considering the relationship between an outside measure of firm performance (changes in the firm's bond rating) and the contemporaneous change in the compensation of the firm's CEO. We find that when a firm's bond rating is down‐graded, CEO total compensation declines by a relatively small amount ($165,500) and when a firm's bond rating is upgraded, CEO total compensation increases markedly ($3,202,900). Thus, while a positive pay‐performance relationship exists, the relationship is not symmetric. CEO compensation changes (increases) much more when firm performance improves than it changes (decreases) when firm performance declines. Further, most of the change in CEO compensation occurs in the stock gains (profits from the exercise of stock options) category for both firms experiencing bond rating upgrades and down‐grades.

The purpose of this paper is to assess the association between Chief Executive Officer (CEO) tenure, compensation, and firm's performance.

The paper compares the influence firms' performance on CEOs' cash and total compensation based on the length of tenure. It also examines pay–performance relationship for new CEOs vs those serving their last year in such positions.

The firm size appears to be a significant explanatory variable for CEOs' cash and total compensation regardless of CEOs tenure and measure of performance. Additionally, firms' performance is a significant determinant of cash compensation for CEOs during the first three years of their work as CEOs and not significant for those with 15 years or more as the company's CEO. Both market‐based and accounting‐based performance measures are negatively correlated with CEOs' total compensation regardless of length of experience.

This study did not differentiate routine CEO changes, i.e. normal retirement, from the non‐routine ones. Additionally, the results may be limited by the temporal nature of the sample. Future studies dealing with CEO turnover should cover a longer period of CEO' tenure and examine the nature of CEO's dismissal. Such a research design may provide additional insight to the CEO compensation and influence of performance measures in executive contracts.

This research offers some evidence in support of CEO incentives relative to the length of service as the firm's CEO. The findings indicate differences in pay–performance sensitivities on the basis of CEO's tenure. Comparing the pay–performance relationship for individuals serving their first year and those serving their last year as the firm's CEOs, the paper detects statistically significant differences in influence of performance on cash compensation.

The current study aims to investigate the impact of firm performance on chief executive officer (CEO) remuneration in the context of an emerging market, i.e. Pakistan. Further, the interactive effect of financial constraints is investigated in the pay–performance relationship.

The study's sample includes 173 non-financial firms listed on the Pakistan Stock Exchange. This study covers the years 2010–2019. The CEO compensation of the sample firms is measured in terms of salary and bonuses, perquisites and stock options paid to the CEO, whereas firm profitability is measured by return on assets, return on equity, Tobin's Q (Q) and earnings per share. The KZ Index measures the degree of financial constraint. The fixed effect model (FEM) and system GMM estimation techniques were used to conclude the study's findings. In addition, to test the robustness of the results, the authors computed the level of financial constraints using the WW Index.

The findings show that firm performance has a significant positive impact on CEO compensation in all profitability measures except Tobin's Q. Further financial constraints have a significant negative impact on CEO compensation. The interactive variables of FC with all profitability measures have a significant negative impact on CEO compensation.

This study examines the relationship between firm performance and CEO compensation. Furthermore, the current study expanded the analysis by incorporating the role of financial constraints in the pay–performance relationship, which has not previously been tested, particularly in the context of an emerging market.

The purpose of this paper is to determine the two-direction relationship between financial firm performance and executive compensation in Thai listed companies; that is, effect of firm performance on executive compensation and the effect of executive compensation on subsequent firm performance. In investigating the relationship, governance, firm-specific and human capital characteristics, which should influence on the pay-performance system, are also considered. This study helps to shape an understanding of the effectiveness of the incentive system in the Thai context.

The System GMM, with concern about the endogeneity problem of the simultaneous relationship, is applied to examine the relationship between firm performance and executive compensation. The samples to investigate this relationship composed of 5,139 firm-years observations for 15 years from the years 2000 to 2014 of 432 non-financial firms in the Thai stock market.

The empirical evidence reveals simultaneous relationship between performance and executive compensation in Thai stock market. It shows that compensation of executives in Thai firms corresponds to firm performance, and compensation of executives leads to an improvement in subsequent performance of Thai listed firms. Moreover, some corporate governance mechanisms and human capital of executives also revealed their particular effects on setting of the pay for performance system in Thailand.

This study confirms that the pay for performance system is applicable in Thailand. Furthermore, the empirical results of this study highlight effects of some governance and human capital characteristics on setting of the pay-performance system. Thus, this study should be a part of the growing body of literature in this area.