Abstract
ABSTRACT Purpose: This research investigates whether the characteristics of corporate governance (executive compensation, board composition, ownership structure, and control) influence the sensitivity of remuneration to firms’ performance, the so-called pay-performance sensitivity. Originality/value: This study brings to the literature a new perspective on the interaction of corporate governance mechanisms aligned with the concept of pay-performance sensitivity. The study shows that governance instruments are not isolated but rather interrelated and interdependent. Design/methodology/approach: The study sample was composed of Brazil 100 Index (IBRX 100) companies listed on B3 from 2014 to 2018. Data were extracted from the Economatica® database, and the reference forms were accessed on the Securities and Exchange Commission of Brazil’s (CVM) website. We use panel data regression models with fixed and random-effects models. Findings: The board composition (represented by the CEO/Chairman duality) increases the pay-performance sensitivity, while the ownership concentration reduces it. In addition, a greater presence of independent members on the board reduces the variation in executive compensation.
Highlights
Executive compensation has been frequently investigated with the objective of assessing its determinants (Essen, Otten, & Carberry, 2012) and the influence of the incentives granted to the manager on his/her behavior (Chen, Goergen, Leung, & Song, 2019).According to Bebchuk and Weisbach (2010), the interest in executive remuneration has existed for some time, the 2008 financial crisis intensified it
This research investigates whether the characteristics of corporate governance influence the sensitivity of remuneration to firms’ performance, the so-called pay-performance sensitivity
This study brings to the literature a new perspective on the interaction of corporate governance mechanisms aligned with the concept of pay-performance sensitivity
Summary
Executive compensation has been frequently investigated with the objective of assessing its determinants (Essen, Otten, & Carberry, 2012) and the influence of the incentives granted to the manager on his/her behavior (Chen, Goergen, Leung, & Song, 2019).According to Bebchuk and Weisbach (2010), the interest in executive remuneration has existed for some time, the 2008 financial crisis intensified it. Jensen and Murphy (1990) argue that the compensation policy to managers can help align interests between shareholders and managers in several ways. Among remuneration mechanisms, they highlighted salary and bonus reviews, stock options, and threats of dismissal. Jensen and Murphy (1990) investigated the effect of these mechanisms on managerial performance and the magnitude of this effect, the so-called pay-performance sensitivity (PPS). Considering a raise of X% in the firm’s value and/or performance, the authors investigated the occurrence and the magnitude of the impact of performance on executive compensation
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