Abstract
The aim of this study was to investigate the effects of management compensation on financial performance in Kenya using case of listed manufacturing firms. The study employed census method of data collection and secondary data sources over a period of 9 years, 2010-2018, for 15 listed manufacturing firms. The agency theory complemented by the contingency, self-determination, and expectancy theories was used in the study. The data was analyzed using ordinary least squares regression analysis model as well as the descriptive methods. Eviews software was employed in the data manipulation. The key finding of the study was that key management compensation was strongly positively associated (correlated) with the financial performance of listed manufacturing firms in Kenya while Director Emoluments affect financial performance of listed manufacturing firms negatively but not strongly. Another finding was that debt ratio highly negatively and statistically significantly influenced the relation between management compensation and financial performance of listed manufacturing firms in Kenya suggesting that debt is an important factor in determining the relation between management compensation and financial performance of listed manufacturing firms in Kenya. The findings of the study are important in that they can be employed in formulating policy initiatives and strategies for improving financial performance of firms in the country.
Highlights
The historical context of labor compensation runs from the 1920s to modern day
The study obtained the value of the mean of the earnings per share with two standard errors (2SE = 2.5301) of the mean implying that the value of the mean of Earnings Per Share (EPS) is highly statistically important indicator of financial performance of listed manufacturing firms in Kenya
This finding indicates that key management compensation positively and statistically significantly influences financial performance
Summary
The historical context of labor compensation runs from the 1920s to modern day. Before Industrial Revolution, craftwork was the primary means of goods production with many workers being self-employed or working in small shops. It was in the 20thcentury that systems of large scale urban production and employment were developed. In the context of labor economics, the price of wage is influenced by the forces of demand and supply of labor and skills just as is the price of any commodity. From the agency (contract) theory, the behavior of the worker and the employer (firm), is influenced by the information asymmetry which means that one party has more knowledge than the other, a phenomenon known as the principal-agent problem. Contemporary debate is rife especially in the US concerning the effectiveness of executive bonuses as a result of the 2008 financial crisis (Spector & Spital, 2011)
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