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

Ntim, Collins G., Lindop, Sarah, Thomas, Dennis A., Opong, Kwaku K. and Abdou, Hussein (2017) Executive pay and performance: The moderating effect of CEO power and governance structure. The International Journal of Human Resource Management. ISSN 0958-5192 (In Press)

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Abstract

This 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.

Item Type: Article
Contributors:
ContributionNameEmailORCID
AuthorNtim, Collins G.c.ntim@hud.ac.ukUNSPECIFIED
AuthorLindop, SarahUNSPECIFIEDUNSPECIFIED
AuthorThomas, Dennis A.UNSPECIFIEDUNSPECIFIED
AuthorOpong, Kwaku K.UNSPECIFIEDUNSPECIFIED
AuthorAbdou, Husseinh.abdou@hud.ac.ukUNSPECIFIED
Uncontrolled Keywords: executive pay; corporate performance; corporate governance; CEO power, endogeneity, South Africa.
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Schools: The Business School > Financial Ethics and Governance Research Group
The Business School
Related URLs:
Depositing User: Collins Ntim
Date Deposited: 19 Jul 2016 15:03
Last Modified: 19 Jul 2016 15:27
URI: http://eprints.hud.ac.uk/id/eprint/29016

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