Reflections of Corporate Governance on Pay-Performance Sensitivity: A New Perspective

Abstract

Purpose: This research investigates whether the characteristics of corporate governance (executive compensation, board composition, ownership structure, and control) influence the sensitivity of remuneration to firms’ performance, the so-called pay-performance sensitivity. Originality/value: This study brings to the literature a new perspective on the interaction of corporate governance mechanisms aligned with the concept of pay-performance sensitivity. The study shows that governance instruments are not isolated but rather interrelated and interdependent. Design/methodology/approach: The study sample was composed of Brazil 100 Index (IBRX 100) companies listed on B3 from 2014 to 2018. Data were extracted from the Economatica® database, and the reference forms were accessed on the Securities and Exchange Commission of Brazil’s (CVM) website. We use panel data regression models with fixed and random-effects models. Findings: The board composition (represented by the CEO/Chairman duality) increases the pay-performance sensitivity, while the ownership concentration reduces it. In addition, a greater presence of independent members on the board reduces the variation in executive compensation.

Corporate governance, CEO compensation, and corporate performance: evidence from India

“…Ataay (2018) also found as the share ownership of blockholders increases, the sensitivity of executive COMP to CP decreases. Similar results were obtained by Iglesias et al (2022) for ownership concentration. An alternate explanation for these results could be the prevalence of family firms in India, where promoters own and control the firm.…”

“…These results support the stewardship theory, which emphasizes the steward role of CEOs who align their interests with the shareholders, leading to wealth maximization (Patnaik and Suar, 2020). Iglesias et al (2022) also found a positive and significant impact of CEOD on the sensitivity of executive COMP to CP. Hence, H6(b) is rejected.…”

Influência do Conselho de Administração e Concentração Acionária no Desalinhamento entre Remuneração Executiva e Desempenho

“…Given the evidence that greater concentration leads to a more remarkable ability of shareholders to protect their interests (Conyon & He, 2011), studies demonstrate that governance mechanisms related to the control structure and the Board are capable of influencing executive remuneration, reflected in the value of companies (Iglesias et al, 2022).…”

“…In general, studies evaluate the existence of a relationship between the level of remuneration and performance (see, for example, Aguiar & Pimentel, 2017;Degenhart et al, 2017;Ernel & Medeiros, 2020;Leite & Hein, 2019;Silva et al, 2018), as well as the sensitivity of executive remuneration to performance (see, for example, Brandão et al, 2019;Iglesias et al, 2022). This study differs from previous ones by treating determinants and investigating factors capable of affecting the portion of remuneration not explained by organizational performance, which may be disconnected from a direct contribution to shareholders, understood as an agency cost (Marquezan et al, 2021).…”

ESG disclosure and pay-performance sensitivity

“…The studies on PPS are inconclusive (Aguiar & Pimentel, 2017;Brandão et al, 2019;Ghrab et al, 2021;Iglesias et al, 2022;Iyengar & Sundararajan, 2021). In addition, studies on the impact of ESG disclosure on executive pay (Cai et al, 2011;Gillan et al, 2010;Jian & Lee, 2015;Karim et al, 2018;Rath et al, 2020) and the moderating effect of ESG disclosure on the sensitivity of executive pay to market performance (Chang et al, 2018;Cho & Ibrahim, 2021;Rath et al, 2020), a relationship that has not been identified in the national literature, are scarce and inconclusive from a theoretical and empirical point of view.…”