Executive compensation and the financial performance of Polish listed companies from the corporate governance perspective

Abstract

Research background: The level of compensation earned by CEOs and the relationship between executive pay and companies? performance is one of the most widely studied issues in the corporate governance literature. Studies conducted in the last several decades have provided evidence that CEO pay should be aligned with accounting financial measures. Purpose of the article: The main purpose of this paper is to determine the relationship between executive compensation and organizational financial performance. In particular, the effect of net income and comprehensive income as the accounting measures of financial performance on executive compensation is compared. Methods: The research comprised listed companies on the Warsaw Stock Exchange (WSE). The role and effect of accounting financial measures on executive compensation are analyzed based on three regression models. The period of analysis spanned ten years, from 2009 to 2018. Findings & value added: There are three conclusions that can be drawn from the study. Firstly, executive compensation in the analyzed companies largely depends on the accounting measures of financial performance, based on net income and comprehensive income (excluding ROE). Secondly, its level is significantly and positively influenced by the company?s size, Tobin?s Q ratio, debt ratio, and dividend rate. Thirdly, comprehensive income has a stronger effect on executive compensation than net income. Our findings add some potentially noteworthy dimensions to the economic literature on corporate governance, which is especially important to apply in the CEE region and other emerging economies. The Anglo-American assumption of corporate governance and executive compensation policy might not be suitable for the realities in much of the world.

Do the same executive compensation strategies and policies fit all the firms in the banking industry? New empirical insights from the CEO pay–firm performance causal nexus

“…This could mean that CEOs are being paid huge incentives and salaries when the performance of their firms is poor. This follows the popular argument in the existing literature that CEOs are well compensated for luck but insulated from being punished for bad performance (Olaniyi, 2019; Olaniyi & Obembe, 2017; Olaniyi & Olayeni, 2020; Sajnóg & Rogozińska‐Pawełczyk, 2022). It further corroborates the stance of managerial power theory, which sees CEO pay as part of the agency problem rather than a solution to it (Agyei‐Boapeah et al, 2019; Ahmed et al, 2023; Sarhan et al, 2019).…”

“…This indicates that CEOs are rewarded for good performance and punished for unfavorable performance. This strand of literature believes that CEO pay is an increasing function of firm performance (Olaniyi & Obembe, 2017; Sajnóg & Rogozińska‐Pawełczyk, 2022). It is the performance that explains CEO pay.…”

Executive compensation, risk and performance: evidence from the USA

“…The academic discourse has evolved into various theorical models and shed lights on the drivers of rising executive compensation (Frydman and Saks, 2010; Gyawali, 2023). A series of empirical investigations ensued these models and produced conflicting outcomes in connection with the nexus between executive compensation and firm performance (Bussin, 2015; Bussin and Blair, 2015; Kweh et al , 2022; Nkwadi and Matemane, 2022; Sajnóg and Rogozińska-Pawełczyk, 2022; Mohammed et al , 2023). Given this background, this section makes a review of both theoretical and empirical literature on the relationship and develops hypotheses for testing.…”

“…“The relationships between CEO compensation and firm performance are intriguing because agency theory suggests that CEOs are only motivated to act in their shareholders’ best interests if they are offered incentive contracts that pay for their performance” (Jensen and Murphy, 1990, as cited in Garas et al , 2022, p. 1–2). Over the last few decades, this topic has drawn enormous scholarly attention in the empirical literature on CEO compensation and firm performance (Kayani and Gan, 2022; Sajnóg and Rogozińska-Pawełczyk, 2022) The extant literature has evolved around The Anglo-American model (Ascherl et al , 2019; Lee et al , 2020; Lin and Shi, 2020; Wang et al , 2021), focusing on the USA (Kostiuk, 1990; Jensen and Murphy, 1990; Hall and Liebman, 1998), the UK (Main et al , 1996; Bender, 2003) and the Asia-Pacific countries (Farooque et al , 2019; Cui et al , 2021; Ding & Chea, 2021; Chen and Hassan, 2022; Kayani and Gan, 2022). Altogether, these studies have produced hybrid and conflicting outcomes on the association between compensation and firm performance (Bussin, 2015; Bussin and Blair, 2015; Nkwadi and Matemane, 2022; Kweh et al , 2022; Sajnóg and Rogozińska-Pawełczyk, 2022; Mohammed et al , 2023), and made the topic controversial in academics and the public domain (Kayani and Gan, 2022).…”

“…However, this pay has generated a lot of debate as it keeps increasing to the extent that it becomes difficult relating it to firm performance (Agyei-Boapeah et al , 2019). Compared with the 1980s, the volume of compensation has enhanced almost 10-fold (Sajnóg and Rogozińska-Pawełczyk, 2022), and given their dramatic rise since the 1970s, CEO compensation has drawn much scholarly attention (Frydman and Saks, 2010; Kweh et al , 2022). Also, the persistent growth in CEO compensation without much reflection on expected firm performance, and the objective of shareholders to maximise their wealth, have escalated continued dialogues and disputes amid corporate analysts and policymakers (Muzata and Marozva, 2022; Mohammed et al , 2023).…”