Top Management Remuneration and Firm Performance: An Exploratory Analysis (original) (raw)

CEO Pay and Company Financial Performance Bussin and Fhedzi SAJHRM 17 June 2015

Introduction Key focus of the study The primary challenge in the executive pay-performance relationship is finding a mutually beneficial balance between executive remuneration and organisational performance. This Orientation: The relationship between Chief Executive Officer (CEO) remuneration and organisation performance has been a topic of close scrutiny, especially since the global financial crisis. Optimal contracting relies on the premise that effective incentives will link organisation financial performance and CEO remuneration in ways that will be in the best interests of both shareholders and CEOs. Research purpose: The purpose of this research study was to investigate the relationship between CEO remuneration and organisation performance in South Africa between 2006 and 2012 and to determine whether the two constructs were positively correlated. Motivation for the study: The study provides an evidenced-based understanding of the nature of the CEO pay-performance relationship in South Africa. Understanding this relationship is critical to finding a suitable model to structure executive remuneration that will protect shareholders from over-remunerating executives in times of economic appreciation, whilst protecting executives from being underpaid in times of economic depreciation.

CEO pay and coy fin performance BUSSIN FHEDZI SAJHRM 17 June 2015

Comparing Pay-Performance Relationships: An Empirical Analysis of India and UK between 2005 and 2021

2023

This paper investigates the empirical relationship between director remuneration and firm performance, the pay-performance relationship, in the UK and India between the years 2005 and 2021. Existing literature has suggested that firms use remuneration of directors to align interests with owners, which explains the existence of a pay-performance relationship, and also to attract the best talent. Furthermore, a host of factors have been linked with the pay- performance relationship including the size of remuneration, components of remuneration, corporate governance, and economic stability. Using a fixed effects regression model, positive pay-performance relationships were found between at least one component of director remuneration and firm performance in both India and the UK. The relationships discovered in this model can be explained by a combination of theories, namely agency and tournament, existing at different compositions across countries. Agency theory is the predominant theory explaining the pay-performance relationship in the UK whilst tournament theory better explains the results from the Indian sample group. The empirical model also established that economic crisis changes the pay-performance relationship by splitting the sample period into normal and crisis years; this found that agency theory becomes dominant in India during crisis. The findings of this paper provide a springboard for future research into pay-performance relationships across economies and the impact of crisis.

Executive Compensation vis-à-vis Firm Performance: Identifying Future Research Agenda

The level of executive compensation in India and abroad has risen stratospherically to such a height that it has made newspaper headlines. Such high level of executive compensation raises the obvious question whether steep rise in executive pay has any bearing on firm performance. While many studies have revealed either positive or negative relationship between executive compensation and firm performance, others found no relationship at all. There is a fundamental confusion as to the exact nature of executive compensation and firm performance relationship. The present paper seeks to lift the veil of confusion regarding the nature of aforesaid relationship in all its variants by identifying and exploring different areas. The authors strive to bridge the gap between confusion and clarity by assiduously analysing and examining the extant literature on the subject. We hope that our endeavour will pave the way for future researchers to break new ground in understanding true and comprehensive relationship between executive compensation and firm performance.

CEO’s Remuneration and Performance of Firm: Evidence from Emerging Economy

Journal of Social Sciences Advancement

From the perspective of an emerging market like Pakistan, this study looks into the influence of a firm’s performance over the compensation of the Chief Executive Officers (CEO). For this purpose, the sample data of 170 non-financial companies ranging from 2008 to 2018 enlisted on the Pakistan Stock Exchange is separated into groups based on firm size, ownership type (family & non-family), and levels of corporate governance so as to analyze pay-performance link. Performance is assessed using return on equity, return on assets, and Tobin's Q, along with firm size, debt ratio, and stock beta serving as the control variables. The results of the study are determined by the Fixed Effect Model and Dynamic GMM-Difference. The results show that a company's performance has a significant impact on the CEO's remuneration. Vice versa results are found on the firm’s size and debt ratio. Furthermore, the results show that family businesses pay their CEOs for performing more in case of...

CEO Pay and Firm Performance

Journal of Business and Management, 2025

Executive compensation, particularly Chief Executive Officer (CEO) pay, continues to provoke intense debate regarding its justification and impact on firm performance. Despite substantial literature, the linkage between CEO remuneration and firm performance remains ambiguous and context-dependent. This study investigates the relationship between CEO pay and firm performance, addressing concerns over pay-performance sensitivity and agency conflicts in corporate governance. The primary purpose of the study is to evaluate whether CEO compensation aligns with shareholder interests by enhancing firm performance, as measured by accounting (Return on Assets). Using a panel dataset of 147 publicly listed firms over ten years, a random effects model is employed to account for unobserved heterogeneity and endogeneity. CEO pay is disaggregated into fixed (salary) and variable (bonus, stock options) components to determine their differential effects on performance. Empirical results reveal a positive and significant relationship between variable pay and firm performance, indicating that performance-contingent compensation aligns managerial incentives with shareholder value creation. However, fixed pay shows no significant effect. The study also finds evidence of diminishing marginal returns to excessive pay, suggesting a threshold beyond which additional compensation yields no performance benefit. The study is limited by potential data unavailability on private firms, variations in pay disclosure quality, and the exclusion of non-financial performance measures. Despite these limitations, the findings provide practical implications for boards, compensation committees, and policymakers in designing performance-based pay structures that curb managerial opportunism and enhance firm value. Socially, the study contributes to the discourse on income inequality and corporate accountability. Original in its integrative approach and multi-dimensional performance analysis, this study contributes to the literature by offering nuanced insights into the structure of CEO pay and its conditional effect on firm performance. It advocates for balanced incentive schemes that promote long-term corporate sustainability and stakeholder confidence.

Determinants of managerial compensation: An empirical exploration

IIMB Management Review, 2019

We explored the data on managerial compensation, past performance ratings and human capital variables (specifically education and work experience) from a manufacturing unit in India in order to explain the variation in total and budgeted variable compensation. The results we obtained provide support for the influence of human capital as well as performance variables on compensation. We also found that human capital variable (specifically education) probably impacted compensation structure through market value in a way that could be dubbed elitist. There was some reflection of tournament view also (more differential for higher designation) on compensation.

Determinants of CEO compensation: evidence from Pakistan

Corporate Governance, 2022

In spite of more research on CEO compensation, where more of this research is anchored in agency or managerialist perspectives, less has been done on its determinants in firms. This paper contributes to the literature by determining the effect of Independent directors, CEO ownership and Profitability on executive cash compensation in UK. Agency theory informed the study. The study adopted an explanatory design Census technique was used as the study only included all the 20 firms for the past 3 years from 2008-2010. The study findings have shown that CEO ownership has a positive and significant effect on CEO compensation. The results have also show that the percentage of independent directors is significantly related to a decrease in the compensation levels of CEO compensation. Firm profitability was positively related to CEO compensation positing that CEOs salary as well as compensation increased with an increase in firm performance. It is therefore imperative for firms to link reward to corporate and individual performance so as to counter the agency problems. The interaction between corporate governance and CEO compensation is an avenue for more research for instance the relationship between shareholders and CEO compensation.

Executives’ Remuneration and Company Performance: An Evaluation

Corporate Board: role, duties and composition, 2011

Executive pay became a much discussed issue during the recent global financial crisis. Substantial research has been done in the United States and United Kingdom, while research in Australia is still limited, especially in terms of using the data for the financial crisis. This paper will investigate the relationship between Australian executives’ remuneration and their companies’ performance during the global financial crisis. Two approaches were used to examine the relationship: firstly, an investigation of the pay-for performance relationship that existed during the global financial crisis; and secondly, checking the robustness test by using one year before-and-after data. The sample is taken from the Top 200 companies from the Australian Stock Exchange (ASX) list for 2007 and 2008. In order to achieve a better understanding of this relationship, a conceptual model has been developed. Results show that Australia’s business reward system is quite effective because executives’ remun...