Abstract
This study focused its attention to the link among firm size and CEO compensation of firms listed at the NSE. Previous researchers have identified firm’s characteristics that influence the firm’s ability to perform. The identified characteristics include firm size, age, reputation and legitimacy. A firm’s characteristics could be described through reference to resources the firm owns and by the organization’s objectives. Previous researches examined the factors influencing CEO compensation revealed a lack of consensus to the explanation of increases in CEO’S compensation. While most of the studies confirm linkages between organizational performance and CEO compensation, they measured organizational performance using financial indicators of performance, this study investigates the link between firm size and CEOs compensation. The study’s population constituted 40 firms listed at the NSE. A mixed design was adopted in the study. Primary data was gathered to capture the opinion of board members on firm size characteristics that determine levels of CEO’S compensation using semi structured questionnaire. Secondary sources of data were used to gather information on financial performance from the financial statement of the listed organizations for 2016-2017 financial periods. Descriptive statistics, correlations, linear, multiple and stepwise regression were applied in analyzing and interpreting the data that was collected. The research revealed that there was significant and positive relationship between firm size and CEOs compensation. The findings of this study are of benefit to board members of organizations in identifying the performance measures that are important to consider when making decisions on CEO remuneration.
Highlights
The environment businesses operate in have become increasingly complex and global, they are faced with the challenges of managing continuous change, competition, cost constraints, increasing employee demands, legal requirements among others
The results indicated that board members disagreed that the portion of shares owned by the CEO contributes to CEO’s power (Mean 3.8, SD 1.01779)
The results indicated that board members disagreed that the frequency with which the board turned down the CEO request for revision of compensation contributed to CEO’s power (Mean 4.15, SD 0.94868)
Summary
The environment businesses operate in have become increasingly complex and global, they are faced with the challenges of managing continuous change, competition, cost constraints, increasing employee demands, legal requirements among others. One area of concern to human resource managers is the implementation of employee compensation programs that would satisfy employees’ needs as well as contain the costs of labor for the firms [1]. In trying to achieve this, firms have continuously seen the need to tie employees’ levels of pay especially the executives to the levels of individual and organizational performance and firm size as well. As such decisions on designing the CEO’S compensation are crucial to an organization since they are accountable for general performance of the organization. This study seeks to find out explanations to these variations by re-examining the influence of firm size as a determinant of CEO’S levels of compensation
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