Executive pay and performance: the moderating effect of CEO power and governance structure

Abstract

Executive pay and performance: the moderating effect of CEO power and governance structure. International Journal of Human Resource Management,(doi:10.1080/09585192.2017 This is the author's final accepted version.There may be differences between this version and the published version. You are advised to consult the publisher's version if you wish to cite from it.http://eprints.gla.ac.uk/121453/ Executive pay and performance: The moderating effect of CEO power and governance structure AbstractThis paper examines the crucial question of whether chief executive officer (CEO) power and corporate governance (CG) structure can moderate the pay-for-performance sensitivity (PPS) using a large up-to-date South African dataset. Our findings are three-fold. First, when direct links between executive pay and performance are examined, we find a positive, but relatively small PPS. Second, our results show that in a context of concentrated ownership and weak board structures; the second-tier agency conflict (director monitoring power and opportunism) is stronger than the first-tier agency problem (CEO power and self-interest). Third, additional analysis suggests that CEO power and CG structure have a moderating effect on the PPS. Specifically, we find that the PPS is higher in firms with more reputable, founding and shareholding CEOs, higher ownership by directors and institutions, and independent nomination and remuneration committees, but lower in firms with larger boards, more powerful, and long-tenured CEOs. Overall, our evidence sheds new important theoretical and empirical insights on explaining the PPS with specific focus on the predictions of the optimal contracting and managerial power hypotheses. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, pay, and performance proxies.

Executive compensation and firm risk after successful mergers and acquisitions in Africa

“…This figure does not indicate whether board size increases after merger but rather gives an average board composition of the firms sampled over the period. This is consistent with South Africa studies (Ntim et al, ; Ntim, Lindop, Thomas, Abdou, & Opong, ) but slightly lower than what is reported for advanced markets (Abernethy, Kuang, & Qin, ; Pathan, ; Patton & Baker, ). However, outside board representation is rather low (i.e., 46% for Africa and 54.6% for South Africa) in comparison to the above 57% reported for advanced markets by the same authors.…”

“…In other words, shareholders are mainly interested in market performance‐related risk when it comes to approving managerial pay. The African market is perceived to exhibit high level of firm‐specific risk due to weak corporate governance practices, frequent labour unrest, corruption, and internal security issues (Ntim et al, ; Ntim et al, ; Okeahalam, ). Yet how these issues are managed at firm‐specific levels in order to create the best atmosphere for value maximisation rather plays no significant role in fixing executive pay.…”

Board diversity, corporate governance, corporate performance, and executive pay

“…The monitoring role of directors includes, for example, hiring and firing top managers and determining EP (Monks & Minow, 1995). EP, indeed, is highly influenced by the efficiency of the board's control and monitoring (Conyon & He, 2011;Elmagrhi et al, 2018;Ntim et al, 2017).…”

“…Board of directors is one of the top decision-making subgroups in modern organizations (Dale-Olsen, Schone, & Verner, 2013;Luckerath-Rovers, 2013;Mahadeo, Soobaroyen, & Hanuman, 2012;Ntim, 2015;Roberson & Park, 2007;Yamori et al, 2017). Corporate boards possess the responsibility for making strategic decisions regarding mergers and acquisitions, hiring, firing, compensating, and promoting executives, among others (Abdullah, 2014;Jensen, 1993;Ntim, Lindop, Thomas, Abdou, & Opong, 2017). In addition, corporate boards can help modern organizations connect better with the external environment, which can facilitate access to resources, such as finance and business contracts (Estélyi & Nisar, 2016;Wellalage & Locke, 2013).…”

Corporate governance and dividend pay-out policy in UK listed SMEs

“…Meanwhile the continuous public interest and discussions surrounding board mechanisms supports the idea that corporate board features may affect dividend pay-out (Hu & Kumar, 2004;Ozkan & Mancinelli, 2006;Ghosh & Sirmans, 2006;How et al, 2008;Al-Najjar & Hussainey, 2009;Al-Matari et al, 2012;Karim, Zijl & Mollah, 2013;Mansourinia et al, 2013;Ghasemi et al, 2013;Hao, Hu, Liu & Yao, 2014;Ntim et al, 2015a, b;Khan, Mihret & Muttakin, 2016;Ntim et al, 2017). Specifically, and given the diversity of, and fast-paced changes in, corporate dividend policies in the post-2007/08 period, it has become important to understand the central drivers of corporate dividend policy in the UK.…”