Chief executive officer compensation, corporate governance and performance: evidence from KSA firms

Abstract

PurposeThis paper aims to examine the relation between chief executive officers (CEOs) compensation and organizational performance in KSA listed companies. It also aims at investigating the effect of corporate governance mechanisms according to this relation.Design/methodology/approachThe researcher uses unbalanced panel data regression analysis on a sample of 181 KSA listed companies from 2005 to 2014.FindingsThe estimation result suggests that CEO Compensation is positively associated with firm performance. The results also show that corporate governance positively and significantly affect the relation between CEO Compensation and performance.Research limitations/implicationsThis research, like any other, has some limitations that can be addressed by future research. The important limitation of this research is that the generalizability of the results is limited by the fact that the majority of the firms in the sample are from material sector which is represented by 42 (32 per cent) firms versus pharmaceutical sector which is represented by only one (1 per cent) firm. Therefore, a future research can tackle the effect of CEO compensation, corporate governance on future firm performance independently.Practical implicationsThe findings have some important implications for stakeholders such as policymakers, listed firms managers, business owners and academic researchers in the emerging KSA market. Besides, understanding the relation between CEO compensation, corporate governance and firm performance can aid the success of corporate modernization and economic reform in KSA.Originality/valueThe research attempts to fill a substantial gap in the literature by providing the first rigorous econometrics evidence on CEO compensation, corporate governance and firm performance. In addition, it provides interesting insight for researches, decision-makers and board members in KSA.