Executive Compensation and Firm Performance Relationship

Umar Nawaz Kayani and Christopher Gan ()
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Umar Nawaz Kayani: College of Business Administration, Al Falah University, Dubai, UAE
Christopher Gan: Faculty of Agribusiness and Commerce, Lincoln University, Christchurch, New Zealand

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 01, 1-18

Abstract: The relationship between executive compensation and firm performance is well documented in the existing literature. However, in the case of Asia Pacific firms, the least attention is paid while investigating this relationship. This study examines the relationship between executive compensation and firm performance in the Asia Pacific firms throughout 2007–2019. We use the total salary paid to chief executive officers and equivalent, the total compensation paid to the CEO, and the equivalent and total salaries and bonuses paid to the CEO and equivalent as a measure of executive compensation. For the firm performance, both accounting measure (ROA) and market measure Tobin’s Q (TQ), and various control variables were used. We found that a firm performance has a positive relationship with total compensation paid to CEO and total salaries and bonuses paid to the CEO. Our results support the agency theory by confirming that higher CEO compensation will lead towards higher firm performance by motivating executives to maximize shareholder benefits. However, the total salary does not have any significant relationship. The overall result of the study indicates that the results of the Asia Pacific regions complement the results obtained in another part of the developed world. The results are supported by the social comparison theory. The study has a practical implication for policymakers, business owners, shareholders, and executives by suggesting aligning their business strategies based on compensation parameters for achieving the best firm performance.

Keywords: Executive compensation; firm performance; Asia Pacific region; agency theory (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500084

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