The Impact of CEOs&amp;#39; Compensations on Cost Stickiness in Industrial Companies Listed on the Amman Stock Exchange

Lina Fuad Hussien

doi:10.5539/mas.v15n1p152

Abstract

The purpose of this study is to analyze the asymmetry in cost behavior (cost stickiness) and to identify the impact of CEOs&#39; compensation on the degree of cost stickiness behavior. The study population consists of the public shareholding companies listed on the ASE, which number (56) industrial company. Data were collected from (35) industrial companies for the period (2009 - 2019). To measure the degree of costs stickiness, The Model of Weiss (2010) was used. The Model of Weiss (2010) takes into account the costs and changes in the level of activity (sales) for the last four quarters of the company, Weiss (2010) model constructs the difference in logarithmic ratios of changes in cost. The study found that the CEO&#39;s compensation in Jordanian industrial companies consists of two forms. The companies pay fixed salaries or performance-related bonuses. The study found that the form of compensation that is paid to the CEO affects the behavior of managers. The results indicated that the performance-related rewards are accompanied by a decrease in the level of cost stickiness, and the compensation paid in the form of fixed salaries are accompanied by a high level of cost stickiness. The study recommends that companies should understand the role of the compensation form in administrative decisions, especially with regard to resource modifications, as management motives in relation to resource modifications must be taken into account because of their clear and direct impact on the cost structure of companies.

Highlights

The study of cost behavior is of great importance in companies regardless of their size, the type of sector to which they belong, or the type of activity they practice, especially in light of the prevailing market economies, and the resulting competition between them, because the costs are related to production savings, because they are highly relevant to the process of supervision and control and the formulation of price, marketing, and production policies, costs play a key role in determining the price and quantities produced, and can affect the degree of monopoly in the markets (Sugiri et al, 2017)
The concept of consistent behavior of variable costs contradicts the modern concept of cost behavior, which proved that variable cost behavior does not change in proportion to the volume of activity (Yasukata & Kajiwara 2011)
The purpose of this study is to analyze the asymmetry in cost behavior and to identify the impact of CEOs' compensation on the degree of cost stickiness behavior

Summary

Introduction

1.1 Study BackgroundThe study of cost behavior is of great importance in companies regardless of their size, the type of sector to which they belong, or the type of activity they practice, especially in light of the prevailing market economies, and the resulting competition between them, because the costs are related to production savings, because they are highly relevant to the process of supervision and control and the formulation of price, marketing, and production policies, costs play a key role in determining the price and quantities produced, and can affect the degree of monopoly in the markets (Sugiri et al, 2017). Many studies have found that costs do not change in proportion to the change in revenue, as they have shown that costs increase in response to increased revenues but do not decrease when revenues fall by the same percentage, ie, its response to decrease in revenues differently than the level of response in the case of higher revenues. This denies the prevailing belief in economic and accounting thought (Anderson et al, 2003). The concept of consistent behavior of variable costs contradicts the modern concept of cost behavior, which proved that variable cost behavior does not change in proportion to the volume of activity (Yasukata & Kajiwara 2011)

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