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CFO compensation: Evidence from Australia

Lien Duong and John Evans

Pacific-Basin Finance Journal, 2015, vol. 35, issue PA, 425-443

Abstract: We investigate the extent to which the incentive alignment theory and the managerial power theory explain the variability of CFO compensation in Australia. We find a positive relationship between the level of CFO compensation and measures of job complexity and firm stock market performance. However, we do not find the pay-for-performance link when performance is measured at the CFO-specific level. CFOs actually receive higher non-cash compensation when reporting quality is lower, suggesting a sharp contrast to predictions of the incentive alignment approach. Conversely, we find that CFOs who have more managerial power (the CFO is on the board of directors, or holds a higher level of stock ownership, or stays longer in their position) receive significantly higher compensation. For example, a CFO who has board membership receives on average $323,590 more than the total compensation of a CFO who is not a board insider. Overall both theories are important in determining Australian CFO compensation but the managerial power hypothesis explains a larger fraction of variation in CFO pay than the incentive alignment view.

Keywords: CFO compensation; Job complexity; Performance; Managerial power (search for similar items in EconPapers)
JEL-codes: G34 J33 M41 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:35:y:2015:i:pa:p:425-443

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