Are CEOs Paid for Performance? A Study of CEO’s Compensation in the Public Sector Corporations
DOI:
https://doi.org/10.58567/jea02010002Keywords:
Firm performance; Public sector corporations; Publicly listed companies; CEO cash compensation; CEO total compensationAbstract
This study provides insight into CEO compensation dynamics in the public sector and private sector publicly listed firms in New Zealand. This research uses descriptive statistics, OLS regression, and the difference-in-difference method to analyze the compensation-performance relationship for the period 2005 to 2012. Our findings show that CEOs in the private sector publicly listed firms are receiving higher remuneration benefits. Our results suggest that firm sales and past compensation are the most important determinants of CEO cash-based as well as total compensation. Firms with a larger board size and the presence of a formal remuneration committee are likely to provide higher cash compensation than those without.
References
Adams, R., & Ferreira, D. (2004). Diversity and incentives in teams: Evidence from corporate boards. Working Paper from the Stockholm School of Economics. Stockholm: University of Stockholm.
Andjelkovic, A., Boyle, G., & McNoe, W. (2002). Public disclosure of executive compensation: Do shareholders need to know? Pacific-Basin Finance Journal, 10(1), 97-117. http://dx.doi.org/10.1016/S0927-538X(01)00034-8
Ballantine, J., Forker, J., & Greenwood, M. (2008). The governance of CEO incentives in English NHS hospital trusts. Financial Accountability & Management, 24(4), 385-410. https://doi.org/10.1111/j.1468-0408.2008.00459.x
Bebchuk, L., & Fried, J. (2003). Executive Compensation as an Agency Problem. Journal of Economic Perspectives, 17, 71-92. http://dx.doi.org/10.1257/089533003769204362
Bebchuk, L., & Fried, J. (2004). Pay Without Performance: The Unfulfilled Promise of Executive Compensation. Cambridge: Harvard University Press.
Bebchuk, L. A., & Fried, J. M. (2005). Pay without performance: Overview of the issues. Journal of Applied Corporate Finance, 17(4), 8-23. https://doi.org/10.1111/j.1745-6622.2005.00056.x
Bertrand, M., & Mullainathan, S. (2000). Agents with and without principles. American Economic Review, 90(2), 203-208. http://doi.org/10.1257/aer.90.2.20
Bertrand, M., & Mullainathan, S. (2001). Are CEOs rewarded for luck? The ones without principals are. The Quarterly Journal of Economics, 116(3), 901-932. https://doi.org/10.1162/00335530152466269
Boyle, G., & Rademaker, S. (2012). Are Bureaucrats Really Paid Like Bureaucrats? Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2275016
Boyle, G., & Roberts, H. (2012). CEO Presence on the Compensation Committee: A Puzzle. Retrieved from http://www.iscr.org.nz/f730,20191/CEO_presence_on_the_Compensation_Committee-_A_Puzzle.pdf
Brickley, J., & Van Horn, R. (2002). Managerial incentive in nonprofit organizations: evidence from hospitals. Journal of Law & Economics, 45, 227-249. https://doi.org/10.1086/339493
Brickley, J., Van Horn, R., & Wedig, G. (2010). Board composition and nonprofit conduct: evidence from hospitals. Journal of Economic Behavior and Organisation, 76, 196-208. http://dx.doi.org/10.1016/j.jebo.2010.06.008
Brunello, G., Graziano, C., & Parigi, B. (2001). Executive compensation and firm performance in Italy. International Journal of Industrial Organization, 19(1), 133-161. http://dx.doi.org/10.1016/S0167-7187(99)00026-0
Burgess, S., & Ratto, M. (2003). The role of incentives in the public sector: Issues and evidence. Oxford Review of Economic Policy, 19(2), 285-300. DOI:doi:10.1093/oxrep/19.2.285
Cahan, S. F., Chua, F., & Nyamori, R. O. (2005). Board structure and executive compensation in the public sector: New Zealand evidence. Financial Accountability & Management, 21(4), 437-465. https://doi.org/10.1111/j.0267-4424.2005.00228.x
Canarella, G., & Gasparyan, A. (2008). New insights into executive compensation and firm performance: Evidence from a panel of “new economy” firms, 1996-2002. Managerial Finance, 34(8), 537-554. http://dx.doi.org/10.1108/03074350810874064
Canarella, G., & Nourayi, M. M. (2008). Executive compensation and firm performance: adjustment dynamics, non‐ https://doi.org/10.1111/j.1468-036X.2009.00500.xhttps://doi.org/10.1002/mde.1368
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33-53. https://doi.org/10.1111/1540-6288.00034
CEOs Are Overpaid, Says Fed Banker. (2002, September 12). The Washington Post, p. E.04.
Chhaochharia, V., & Grinstein, Y. (2009). CEO compensation and board structure. Journal of Finance, 64(1), 231-261. https://doi.org/10.1111/j.1540-6261.2008.01433.x
Coakley, J., & Iliopoulou, S. (2006). Bidder CEO and other executive compensation in UK M&As. European Financial Management, 12(4), 609-631. https://doi.org/10.1111/j.1468-036X.2006.00333.x
Companies Act 1993. Retrieved from http://www.legislation.govt.nz/act/public/1993/0105/latest/DLM319570.html
Conyon, M. J., & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17(4), 1158-1175. https://doi.org/10.1016/j.jcorpfin.2011.04.006
Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics, 51, 371-406. https://doi.org/10.1016/S0304-405X(98)00058-0
. Crown Research Institutes. (2013, 1st February) Retrieved from http://www.msi.govt.nz/get-connected/crown-research-institutes
Edmans, A., & Gabaix, X. (2009). Is CEO pay really inefficient? A survey of new optimal contracting theories. European Financial Management, 15, 486-496. https://doi.org/10.1111/j.1468-036X.2009.00500.x
Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger Board Size and Decreasing Firm Value in Small Firms. Journal of Financial Economics, 48, 35-54. http://scholarship.law.cornell.edu/facpub/393?utm_source=scholarship.law.cornell.edu%2Ffacpub%2F393&utm_medium=PDF&utm_campaign=PDFCoverPages
Elayan, F. A., Lau, J. S., & Meyer, T. O. (2003). Executive incentive compensation schemes and their impact on corporate performance: evidence from New Zealand since compensation disclosure requirements became effective. Studies in Economics and Finance, 21(1), 54-92. https://doi.org/10.3390/jrfm14010031
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325. http://www.jstor.org/stable/725104?origin=JSTOR-pdf
Frydman, C., & Jenter, D. (2010). CEO Compensation. Retrieved 20 September 2012 Http://ssrn.com/abstract=1582232
Ghosh, S. (2010). Firm Performance and CEO Pay Evidence from Indian Manufacturing. Journal of Entrepreneurship, 19(2), 137-147. https://doi.org/10.1177/097135571001900203
Gigliotti, M. (2013). The compensation of top managers and the performance of Italian firms. The International Journal of Human Resource Management, 24(4), 889-903. https://doi.org/10.1080/09585192.2012.702317
Gu, Z., & Kim, H. (2009). CEO cash compensation determinants: an empirical examination of US airlines. The Service Industries Journal, 29(7), 995-1005. https://doi.org/10.1080/02642060902749823
Gunasekaragea, A., & Wilkinson, M. (2002). CEO compensation and firm performance: a New Zealand investigation. International Journal of Business Studies, 10(2), 45-60. http://dx.doi.org/10.2139/ssrn.2403184
Hall, B. J., & Murphy, K. J. (2003). The trouble with stock options. Journal of Economic Perspectives, 17, 49-70. http://doi.org/10.1257/089533003769204353
Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 88, 96-118. https://www.jstor.org/stable/116820
Hubbard, A. (2000, 20 February). The Fall of Chairman Meo. Sunday Star Times, 9.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48(3), 831-880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Jensen, M. C., & Murphy, K. J. (1990). Performance Pay and Top Management Incentives. Journal of Political Economy, 98, 225-264. https://www.journals.uchicago.edu/doi/10.1086/261677
Jeppson, C. T., Smith, W. W., & Stone, R. S. (2011). CEO compensation and firm performance: Is there any relationship? Journal of Business & Economics Research (JBER), 7(11), 81-93. https://doi.org/10.19030/jber.v7i11.2357
Jiang, H., Habib, A., & Smallman, C. (2009). The effect of ownership concentration on CEO compensation-firm performance relationship in New Zealand. Pacific Accounting Review, 21(2), 104-131. http://dx.doi.org/10.1108/01140580911002053
Kahn, C. M., Silva, E. C. D., & Ziliak, J. P. (2001). Performance-based wages in tax collection: The Brazilian tax collection reform and its effects. Economic Journal, 111(468), 188-205. doi:10.1111/1468-0297.00594
Kale, J., Reis, E., & Venkateswaran, A. (2009). Rank Order Tournaments and Incentive Alignment: The Effect on Firm Performance. Downloaded on 8 December 2022 from https://www.cfr-cologne.de/download/researchseminar/WS0708/Kale-Reis-Venkateswaran_Cologne.pdf
Kato, T., Kim, W., & Lee, J. H. (2007). Executive compensation, firm performance, and chaebols in Korea: Evidence from new panel data. Pacific-Basin Finance Journal, 15(1), 36-55. https://www.econstor.eu/bitstream/10419/33186/1/504724347.pdf
Kato, T., & Kubo, K. (2006). CEO compensation and firm performance in Japan: Evidence from new panel data on individual CEO pay. Journal of the Japanese and International Economies, 20(1), 1-19. http://dx.doi.org/10.1016/j.jjie.2004.05.003
Kato, T., & Long, C. (2006). Executive turnover and firm performance in China. The American Economic Review, 96(2), 363-367. 10.1257/000282806777212576
Klein, A. (1998). Firm Performance and Board Committee Structure 1. The Journal of Law and Economics, 41(1), 275-304. https://doi.org/10.1086/467391
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33(3), 375-400. https://doi.org/10.1016/S0165-4101(02)00059-9
Langdon, C. (2002, 19 June). Golden Handshake for Former State Workers. The Dominion, 10.
Lau, A., & Vos, E. (2004). Relation between CEO compensation, firm size and firm performance. New Zealand Journal of Applied Business Research, 3(1), 51-64. http://dx.doi.org/10.21511/imfi.17(2).2020.19
Lavy, V. (2007). Using performance-based pay to improve the quality of teachers. Future of Children, 17(1), 87-109. https://doi.org/10.1353/foc.2007.0007
Lazeasr, E. P. & Rosen, S. (1981). Rank-Order Tournaments as Optimum Labor Contracts. Journal of Political Economy, 89(5), 841-864. https://www.jstor.org/stable/1830810
Leone, A. J., Wu, J. S., & Zimmerman, J. L. (2006). Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting and Economics, 42(1), 167-192. https://doi.org/10.1016/j.jacceco.2006.04.001
Main, B. G., & Johnston, J. (1993). Remuneration committees and corporate governance. Accounting and Business Research, 23(sup1), 351-362. https://doi.org/10.1080/00014788.1993.9729903
Masulis, R. W. & Zhang, S. (2013). Compensation Gaps Among Top Executives: Evidence of Tournament Incentives or Productivity Differentials? (May 21, 2013). FIRN Research Paper, Available at SSRN: https://ssrn.com/abstract=2275455 or http://dx.doi.org/10.2139/ssrn.2275455
Morton, J., & Dickison, M. (2012). Public CEOs enjoy big pay hikes. New Zealand Herald, 1-6. Retrieved from www.nzherald.co.nz/business.news/article.cfm?c_id=3&objectid=10794629
Mueller, D. C. (2003). Public Choice III. Cambridge: Cambridge University Press.
Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 2485-2563. https://doi.org/10.1016/S1573-4463(99)30024-9
Murphy, K. J. (Ed.). (2012). Executive compensation: where we are, and how we got there. North Holland: Elsevier Science. http://doi.org/10.1016/B978-0-44-453594-8.00004-5
Newman, H. A., & Mozes, H. A. (1999). Does the composition of the compensation committee influence CEO compensation practices? Financial Management, 28, 41-53. https://scholar.uwindsor.ca/odettepub/35?utm_source=scholar.uwindsor.ca%2Fodettepub%2F35&utm_medium=PDF&utm_campaign=PDFCoverPages
Niskanen, W. (1975). Bureaucrats and politicians. Journal of Law & Economics, 18, 617-643. https://doi.org/10.1086/466829
Nourayi, M. M., & Daroca, F. P. (2008). CEO compensation, firm performance and operational characteristics. Managerial Finance, 34(8), 562-584. https://doi.org/10.1108/03074350810874082
Nourayi, M. M., & Mintz, S. M. (2008). Tenure, firm's performance, and CEO's compensation. Managerial Finance, 34(8), 524-536. https://doi.org/10.1108/03074350810874055
NZSX and NZDX Listing Rules (2012). https://nzx.com/files/static/cms-documents/NZSX:NZDX%20Listing%20Rules%205%20October%202012.pdf
Olson, M. (1971). The logic of Collective Action: Public Goods and the Theory of Groups. Cambridge MA: Harvard University Press.
Ozdemir, O., & Upneja, A. (2012). Board structure and CEO compensation: Evidence from US lodging industry. International Journal of Hospitality Management, 31(3), 856-863. https://doi.org/10.1016/j.ijhm.2011.10.004
Ozkan, N. (2007). Do corporate governance mechanisms influence CEO compensation? An empirical investigation of UK companies. Journal of Multinational Financial Management, 17(5), 349-364. https://doi.org/10.1016/j.mulfin.2006.08.002
Ozkan, N. (2011). CEO compensation and firm performance: an empirical investigation of UK panel data. European Financial Management, 17(2), 260-285. https://doi.org/10.1111/j.1468-036X.2009.00511.x
Petra, S. T., & Dorata, N. T. (2008). Corporate governance and chief executive officer compensation. Corporate Governance, 8(2), 141-152. http://dx.doi.org/10.1108/14720700810863779
Rosen, S. (1990). Contracts and the Market for Executives. National Bureau of Economic Research, NBER Working Paper No. 3542, http://www.nber.org/papers/w3542
State-Owned Enterprises. (2011, 15 Aug 2011)Retrieved from http://www.treasury.govt.nz/statesector/soes
Swiss, J. E. (2005). A framework for assessing incentives in results-based management. Public Administration Review, 65(5), 592-602. doi:10.1111/j.1540-6210.2005.00486.x
Tuttle, M., & Bumpass, D. (2005). Factors Influencing Governors' Salaries, 1961-2001. The BE Journal of Economic Analysis & Policy, 10(1), http://dx.doi.org/10.2202/1935-1682.1542
Ueng, C. J., Wells, D. W., & Lilly, J. D. (2000). CEO influences and executive compensation: large firms vs. small firms. Managerial Finance, 26(8), 3-12. https://doi.org/10.1108/03074350010766800
Unite, A. A., Sullivan, M. J., Brookman, J., Majadillas, M. A., & Taningco, A. (2008). Executive pay and firm performance in the Philippines. Pacific-Basin Finance Journal, 16(5), 606-623. https://doi.org/10.1016/j.pacfin.2006.12.002
Xie, B., Davidson, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316. https://doi.org/10.1016/S0929-1199(02)00006-8
Zhou, X. (2000). CEO pay, firm size, and corporate performance: evidence from Canada. Canadian Journal of Economics/Revue canadienne d'économique, 33(1), 213-251. https://doi.org/10.1111/0008-4085.00013
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Krishna Reddy
This work is licensed under a Creative Commons Attribution 4.0 International License.
