Remuneration Committee, Ownership Structure and Pay-for-Performance: Evidence from Malaysia

Abstract:     
We examine the association between remuneration committee and ownership structures on pay-for-performance. We find that appropriately structured remuneration committee and institutional shareholders enhance the pay-for-performance elasticity which lends credence to their monitoring role. We also find that pay-for-performance relationship is weaker at high level of managerial ownership, consistent with agency theory prediction. However, we also show that among pay-without-performance firms, executives earn higher pay as managerial ownership increases, which suggests that rent extraction through overcompensation is likely, in tandem with managerial power theory. The evidence shows that both the principal-agent and managerial power views are relevant in explaining executive pay in Malaysia.

Number of Pages in PDF File: 42

Keywords: corporate governance, executive compensation, compensation committee, ownership, Malaysia

working papers series