The Impact of Corporate Governance on Executive Compensation

Abstract

"This paper examines the relationship between the compensation of the top five executives at a set of over 400 publicly listed Canadian firms and various internal and external corporate governance-related factors. The media is full of stories suggesting a relationship between large executive compensation packages and failures in governance at various levels within organisations, but there exists little formal analysis of many of these relationships. Our analysis provides empirical evidence supporting some of these assertions, refuting others and documenting new relationships. We find that variances in internal governance related to differences across firms in the characteristics of the CEO, compensation committee and board of directors do influence both the level and composition of executive compensation, especially for the CEO. Considering external measures of corporate governance, we find that different types of shareholders and competitive environments impact executive compensation. We do not find that either the internal or external governance characteristics dominate". Copyright (c) 2008 The Author Journal compilation (c) 2008 Blackwell Publishing Ltd.

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

“…The empirical literature is broadly consistent with the view that ensuring a balanced distribution of power at the top reduces the influence that CEOs may have over the pay setting processes and institutions, which can impact positively on the PPS (Lippert & Porter, 1997;Benito & Conyon 1999 Conyon (1997), Core et al (1999), Lin (2005) and Sapp (2008), for samples of UK, Taiwanese and Canadian listed firms, respectively. With reference to founding status, Li and Srinivasan (2011) report a higher PPS for firms with serving founder CEOs than those that are not.…”

“…In contrast, the MPH considers executive pay arrangements as a product of close negotiations between powerful executives and weak boards, which leads to the creation of inefficient managerial contracts that exacerbate agency problems (Bebchuk et al, 2002;Sapp, 2008). It should be noted that excessive managerial power can create two distinct agency conflicts.…”

“…Prior studies have identified a number of CEO power attributes, including CEO age, duality, founding status, ownership, power, reputation and tenure, which can have important implications for CG, performance and the PPS (Conyon, 1997;Lippert and Porter, 1997;Benito & Conyon 1999;Lin, 2005;Sapp, 2008). We, therefore, focus on the effect of these seven (CEO age, duality, founding status, ownership, power, reputation and tenure) CEO power attributes on the PPS in the current study.…”

“…This is more likely to be a problem in SA where corporate ownership has historically been dominated by a small set of very large companies often built around highly complicated cross-holdings and tall pyramid (Ntim et al, 2012a, b). Similarly and due to their larger shareholdings, institutional shareholders can exert greater influence on corporate decisions, including executive pay (Sapp, 2008). Institutional shareholders also enjoy knowledge and information advantages over individual or less-informed investors, which can facilitate greater activism and managerial monitoring that can impact positively on the PPS (Hartzell and Starks, 2003;Ding et al, 2015).…”

“…In fact, and as an example of the case of research context potentially accounting for differences in the level of PPS that is observed, Sapp (2008) reports positive and higher PPS for 416 Canadian firms from 2000 to 2005 compared with similar UK and US firms. Studies by Kaplan (1994), Kang and Shivdasani (1995), Angel and Fumas (1997), Cheng and Firth (2005) and Merhebi et al (2006), using German, Japanese, Spanish, Hong Kong and Australia companies, respectively, find similar positive and relatively strong PPS.…”