The association between non-executive compensation and firm performance

Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

“…The results of regressions that account for cross‐sectional dependence reveal that there is evidence of performance‐based pay for CEOs of Nigeria's quoted firms. The findings support the theoretical proposition of agency theory that performance should be used as a positive driver of CEO pay to align the managers' and shareholders' interests (Al‐Shammari, 2021; Amewu & Alagidede, 2021; Dang et al, 2021; Hu & Xu, 2021; Jensen & Meckling, 1976; Ko et al, 2020; Yang et al, 2020; Zoghlami, 2021). This finding equally confirms the research outputs of extant studies such as Chen et al (2021), Bouteska and Mefteh‐Wali (2021), Singh et al (2021), Al‐Faryan (2021), Ibrahim et al (2021), and Bhuyan et al (2020) which affirm the theoretical propositions of the classical agency theory.…”

“…The results of regressions that account for cross-sectional dependence reveal that there is evidence of performance-based pay for CEOs of Nigeria's quoted firms. The findings support the theoretical proposition of agency theory that performance should be used as a positive driver of CEO pay to align the managers' and shareholders' interests (Al-Shammari, 2021;Amewu & Alagidede, 2021;Dang et al, 2021;Hu & Xu, 2021;Jensen & Meckling, 1976;Ko et al, 2020;Yang et al, 2020;Zoghlami, 2021). This finding equally confirms the research outputs of extant studies such as Chen et al ( 2021 T A B L E 5 System generalized method of moments (GMM) and Driscoll-Kraay (DK) Results (dependent variable: CEO pay, lceop) such as Obembe (2015, 2017), Duffhues and Kabir (2008), Aduda (2011), andFaria et al (2014) which supports the theoretical stand of managerial power theory that posits CEO pay to be a factor that aggravates agency problem rather than scaling it down (Bebchuk et al, 2011;Bebchuk & Fried, 2003).…”

“…First, following the divorce of managerial responsibility from possession in listed firms, agency theory stresses the importance of executive compensation as an internal corporate governance mechanism that matches shareholders' and professional managers' interests (Chukwuma et al, 2021; Wang et al, 2021; Yang et al, 2020). To prevent exploitation of avalanche of information gap which might be to the disadvantage of dispersed shareholders, the principal‐agent theory posits that executive compensation of professional managers should be tied and benchmarked to observable firm performance of listed firms (Ko et al, 2020; Tee, 2021). This helps to transfer some of the risks to professional managers and instigate them to pursue shareholders' interests.…”

The Relationship between Corporate Governance, Employee Salaries, Salary Gaps and Financial Performance

“…In a better corporate governance system, optimal salary policies and incentive measures are devised to merge employee interests with the overall goals of the organisation (Gibbons & Murphy, 1992). Ko et al (2020) indicated that a negative correlation exists between firm performance and fixed salary systems and that changing to variable salaries can improve firm performance. Variable salary systems encourage employees to increase their work efficiency, which benefits firm performance.…”

Rewards Effects Through Entrepreneurial Orientation to the Performance of the Indi 4.0 Manufacturing Industry

“…A certain level of EO may be regarded as one organization's intangible asset that can contribute to the improvement of the firm's performance. The mutually beneficial relationship between employees and employers depends heavily on the proper compensation system (Ko et al, 2020). Compensation is the primary source of the employees' income, which has an impact on their attitude and behaviour during employment in organizations.…”