Executive compensation and corporate performance of energy companies around the world

Chaohui Wang,Su Zhang,Subhan Ullah,Raza Ullah,Farid Ullah

doi:10.1016/j.esr.2021.100749

Abstract

This paper studies the relationship between executive compensation and corporate performance of global energy companies. Data from 121 listed energy companies from 2010 to 2019 were collected for empirical analysis. The results show that in the energy industry, executive compensation has a significant positive impact on corporate performance, which is consistent with agency theory, tournament theory and social network theory. In addition, we found that cash incentives are more useful than equity incentives for senior executives. Therefore, we recommend that energy companies establish a reasonable compensation incentive system to address agency issues in the sector.

Highlights

In contemporary society, high executive compensation has become a global concern
This article selects energy companies worldwide to explore the relationship between executive compensation and firm performance
Explanatory variables include the natural logarithm of the compensation of top three executives (LNS) and the proportion of stocks held by executives (MSR)

Summary

Introduction

High executive compensation has become a global concern. According to a 2017 survey by the US Bloomberg Consulting Company in 22 countries around the world, CEO’s compensation is dozens or even hundreds of times that of ordinary employees both in developed and developing countries. According to a national survey by Stanford University, ‘74% of Americans believe that CEO salaries are too high compared to typical workers.’. Executive compensation, especially those linked with performance,. This article selects energy companies worldwide to explore the relationship between executive compensation and firm performance. It helps to understand whether executive compensation contributes to company performance in the energy industry, thereby promoting the establishment of effective incentive mechanisms. With regards to the relationship between executive compensation and corporate performance, there are only studies carried out in specific regions. Agency theory believes that high remuneration could push executives to work hard for the benefit of the company. Tournament theory believes that a large salary gap could promote the improvement of company performance.

Literature review

Results and discussion

Conclusion