Abstract
This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary in enhancing shareholder value for Korean non-life insurers. Unlike previous studies that show that international differences in executive pay have been diminished considerably since the 2000s, our evidence shows that there is a remarkable difference in CEO compensation between Korean non-life insurers and U.S. property-liability insurers. Furthermore, we provide evidence that the pay-performance relationship is weaker in Korean non-life insurance companies relative to US counterparts, suggesting that it is necessary for Korean non-life insurers to tie performance-based compensation more closely to shareholder value in the design of CEO compensation.
Highlights
With respect to pay-performance sensitivity, we demonstrate that performance-based pay is more effective than fixed-base salary in enhancing shareholder value in the design of CEO compensation in Korean non-life insurance firms
We find that a proportion of performance-based pay in CEO compensation is consistently found to be positively related to firm performance, such as return on assets (ROA), return on equity (ROE), and Tobin’s Q
Using publicly available data on CEO compensation, we performed a study of the level, structure, and pay-performance relationship in Korean non-life insurance firms
Summary
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Our evidence shows that the pay-performance relationship is weaker in Korean non-life insurance companies compared to their US property-liability counterparts This result suggests that it is necessary for Korean non-life insurers to tie performance-based compensation more closely to shareholder value in the design of CEO compensation. By providing direct evidence on CEO compensation from Korean non-life insurers and a comparison of Korean and US insurers’ CEO pay, our study fills a gap in the literature that has so far typically focused on CEO compensation in the US insurance sector, thereby extending the research on executive pay to an international setting. Our findings reveal that unlike US property-liability insurance firms, performance-based compensation has not been widely used in Korean non-life insurance companies, leading to a less tight relationship between CEO pay and shareholder wealth.
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