The Effect of Remuneration Committee Independence on the Pay–Performance Relationship: Evidence from the Banking Industry in Poland

Abstract

This article seeks to ascertain the impact of remuneration committee independence on the level of bank executive compensation in the context of the presence of a large blockholder, based on unique hand-collected panel data for all banks listed on the Polish stock exchange between 2005 and 2013. The recent postcrisis European Commission recommendation requiring banks to have independent board members on their remuneration committees does not necessarily reduce the level of executive pay or make incentive contracts more efficient. The findings show that executives of banks with a controlling shareholder and a greater number of independent board members on their remuneration committees are paid above the average for the sample. This excessive executive compensation may be interpreted as evidence of a violation of the rights of minority shareholders and depositors. The findings are consistent with managerial power theory.