Executive Incentive Compensation Schemes and their Impact on Corporate Performance: Evidence from New Zealand Since Legal Disclosure Requirements Became Effective
Fayez A. Elayan
Brock University - Department of Accounting, Faculty of Business
Jammy S.C. Lau
Massey University - Department of Commerce
Thomas O. Meyer
Southeastern Louisiana University - Department of Marketing and Finance
Massey University Commerce Working Paper No. 00-22
For many years, executive compensation has been regarded as an internal mechanism to alleviate the agency problems between executives and shareholders. Using a sample of 73 New Zealand listed companies (1994-1998), this paper examines the current state of executive compensation in New Zealand and the relationship between executive incentive compensation and firm performance. The empirical results concerning the relationship between executive compensation and corporate performance indicate that company size and business risk are important factors affecting executive compensation level. The results also show that neither compensation level nor the adoption of an incentive compensation scheme (ICS) are significantly related to corporate performance. However, the relationship between Tobin's q and executive share ownership is found to be strong and statistically significant, while the relationship is found to be insignificant when ROE and ROA are used as a proxy for corporate performance. These negative results suggest that the design of the executive compensation contract has not yet contributed to the reduction of agency costs for companies in New Zealand.
Number of Pages in PDF File: 46
Keywords: Executive Compensation, Stock Options, Salary Disclosure Regulation
JEL Classification: G3, G35, J33working papers series
Date posted: January 27, 2001
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