Top executive pay and firm performance

Asymmetric information phenomenon in the link between CEO pay and firm performance

“…This is an indication that managers might probably use their power to exert influence over their pay. This goes in line with the study of Wilson et al (1992) who also established a nonlinear link between the pay and performance. Confirming the same result, Kaplan (1994) detected a non-linear relationship between executive pay and firm performance among Japanese listed firms.…”

“…This might result in a situation whereby executives are paid for good luck but not punished for bad luck (Chaigneau and Sahuguet, 2012;Garvey and Milbourn, 2006). Second, the possibility of non-linear relationship between executive pay and firm performance cannot be ruled out (Kuo et al, 2014;Ferrero-Ferrero et al, 2014;Canarella and Nourayi, 2008;Leone et al, 2006;Nourayi, 2006;Barkema and Pennings, 1998;Wilson et al, 1992). Third, the sensitivity of executive compensation to negative performance might not be symmetrically determined on the surface to know whether executives are punished for poor firm performance or not (Campbell and Thompson, 2015;Lu et al, 2015;Shaw and Zhang, 2010;Garvey and Milbourn, 2006).…”

“…In addition, decomposing a variable into positive and negative shocks helps to reveal the evidence of non-linear effect (Hatemi-J, 2012;Schorderet, 2004;Granger and Yoon, 2002). Few studies have established a non-linear relationship between CEO pay and firm performance (Kuo et al, 2014;Ferrero-Ferrero et al, 2014;Canarella and Nourayi, 2008;Leone et al, 2006;Nourayi, 2006;Barkema and Pennings, 1998;Wilson et al, 1992) but not by decomposing variable into positive and negative shocks.…”