Executive Compensation and Firms’ Financial Performance: Analytical Approach in Nigeria

Abstract

This study ascertained the relationship that exists between executive compensation and firms’ financial performance in Nigeria. The data for the study was gathered form the annual reports and accounts of companies quoted on the floor of the Nigerian Stock Exchange for a period of nine years ranging from 2014 to 2022. From the regression result conducted it was found that Executive compensation had a positive relationship with firm performance when proxied using returns on equity and return on asset. It is however negatively related with Tobin’s Q Firm size had a positive relationship with return on asset, Tobin’s and return on equity; Board independence had a negative impact on firm performance (return on asset and return on equity) for the measures of performance but was positively related with Tobin’s Q. Leverage was found to exhibit a negative relationship with firm performance. Leverage had a negative relationship with firm performance (return on equity and Tobin’s Q). Therefore, it is recommended that executive compensation is a vital element that should not be undermined in an organization due to the fact that it has been established from the analysis carried out that this variable is a key driver of financial performance in organizations. Keywords: Executive compensation, firm performance, Firm size, Leverage, and board Independence