Managerial Ownership, Executive Remuneration and Firm Performance: Evidence from Two-Tier Board Model

Abstract

Manuscript type: Empirical.Research Question/Issue: This study seeks to investigate the relationship between executive remuneration and company performance and to explore the influence of supervisory board and managerial ownership on executive remuneration in a country with concentrated ownership and a two-tier board model.Research Findings/Insights: The study uses data of 293 Polish companies listed on the Warsaw Stock Exchange and a total of 1,118 observations were made for the period between 2008 and 2013. Having analyzed the panel data, there have been identified positive relationships between lagged ROA and executive remuneration in the whole sample, and also the positive relationship between lagged Tobin’s q and executive remuneration, when managerial ownership is higher than 5%. Moreover, managerial ownership is also positively related to executive remuneration, but only when this ownership is higher than 5%. In contrary, there is no serious relationship between supervisory board characteristics, which are responsible for determining executive remuneration in the two-tier board model, and executive remuneration, only a weak relationship between supervisory board diversity and executive remuneration was found.Theoretical/Academic Implications: This study provides empirical support for agency theory and its implications for executive remuneration in companies with concentrated ownership structure. Moreover, it also gives support to the managerial power approach and suggests that owner-managers are able to influence their remuneration, but only when they own a substantial fraction of the company’s equity. Furthermore, this research states that these managers can increase their own remuneration, linking top managers pay and firm performance. It also shows that there are only weak associations between supervisory board characteristics and executive remuneration. Since supervisory boards are perceived as passive, the characteristics of these bodies do not have real importance for the companies.Practitioner/Policy Implications: This study may contribute to the intensification of the discussion on executive remuneration and its association with company performance. In addition, it also adds arguments to the discussion on the role supervisory boards in the two-tier board model and managerial ownership in countries, where ownership is concentrated.