Abstract
CEO compensation and performance evaluation has become a highly contention issue in the business world. Several factors appear to be behind the image problem but the uppermost is the dramatic increase in CEO reward in recent decade. Wage efficiency theory argues higher compensation would increase the performance but on the evaluation of CEO performance many issues are faced in selecting performance measurement indicators. The purpose of this paper is to extend discussions in evaluating the CEO performance in research domain. Based on agency theory, the model of this research is developed. The cross-sectional data was collected by questionnaires. By applying regression model, this study revealed that independent directors and female directors on the use of non-financial measures in CEO performance evaluation, are found to be positively associated with the use of non-financial measures which reinforce the findings of prior studies in regarding their influence on the use of non-financial measures in CEO and corporate performance evaluation. The ratio of female directors on the BOD is significantly and positively associated with the use of non-financial measures in the evaluation of CEO performance. This study contributes economically, socially and politically.
Highlights
CEO compensation is under the spotlight more than ever before, after the recent financial crises (Albert and Valerie, 2018; Farid et al, 2011)
This section attempts to identify the influences of independent directors and female directors on the use of nonfinancial measures in CEO performance evaluation based on regression analysis
The aim of this study was to explore the influence of independent directors and female directors on the use of non-financial measures in CEO performance evaluation
Summary
CEO compensation is under the spotlight more than ever before, after the recent financial crises (Albert and Valerie, 2018; Farid et al, 2011). According to the wage efficiency theory, if the wage is higher than equilibrium, CEO’s level the performance will increase, but at the same time, the matter of evaluation of performance arises. There are several methods to evaluate (Tahir et al, 2018). Nonfinancial measures in CEO performance evaluation is considered as a good corporate governance practice. Former studies focused on the use of non-financial measures in CEO performance evaluation and how corporate governance variables influence the use of non-financial measures in CEO compensation plan
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