Compensation committees, CEO pay and firm performance

Sutharson Kanapathippillai, Ferdinand Gul, Dessalegn Mihret and Mohammad Muttakin

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: We examine whether compensation committee existence (CCX) and compensation committee effectiveness (CCE) are associated with CEO pay-performance alignment, using data drawn from a sample of Australian listed companies. We find that compensation committee existence and effectiveness are positively associated with CEO pay-performance alignment. Further, our results show that the relationships hold for the pre- and post-GFC (Global Financial Crisis) periods but not for the crisis period. This evidence supports the prospect theory argument that in times of macroeconomic crisis, uncontrollable factors external to the firm constitute a firm's reference point for making executive remuneration decisions. These results are robust to alternative measures of firm performance and CEO cash compensation as well as tests of endogeneity. Overall, our evidence suggests that compensation committees contribute to addressing agency problems pertinent to contemporary corporate governance practices.

Keywords: Chief executive officer; Compensation committee; Compensation; Global financial crisis; Agency theory; Prospect theory (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18305754

DOI: 10.1016/j.pacfin.2019.101187

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