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Compensation committees, CEO pay and firm performance

journal contribution
posted on 2019-10-01, 00:00 authored by Sutha KanapathippillaiSutha Kanapathippillai, Ferdinand Gul, Dessalegn Mihret, Mohammad MuttakinMohammad Muttakin
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.

History

Journal

Pacific-Basin finance journal

Volume

57

Article number

101187

Pagination

1 - 17

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0927-538X

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2019, Elsevier B.V.