Performance Consequences of Group Versus Individual Compensation Schemes for Senior Executives

36 Pages Posted: 23 Jul 2008

See all articles by Paul James Brown

Paul James Brown

UTS Business School

Zoltan P. Matolcsy

University of Technology Sydney (UTS) - School of Accounting

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ; Financial Research Network (FIRN)

Date Written: July 6, 2008

Abstract

This paper investigates the firm performance implications associated with the choice of individual versus group compensation schemes for senior executives below the CEO level. We define individual compensation schemes where senior executives are compensated independently from other senior executives, where incentive compensation is linked to individual performance. In contrast, group compensation schemes are defined where senior executive compensation is jointly determined with other senior executives, with compensation linked to common incentives. This paper is motivated by limited evidence on the firm performance implications of compensation scheme choice for senior executives', limiting critical evaluation of senior executives' compensation. Evidence using Australian data provides support that firms that choose compensation contracts for the senior executives that are not congruent with firm characteristics suffer lower subsequent accounting performance. However this lower performance is not significant for changes in market value of equity. The findings contribute to the ongoing debate surrounding the determination of appropriate corporate governance mechanisms in the presence of agency conflicts, and especially executive compensation schemes.

Keywords: Corporate Governance, Senior Executive Compensation and incentives, Firm performance, Agency Theory, Group and Individual Compensation

JEL Classification: G12, G30, G34, J33, J41, M41

Suggested Citation

Brown, Paul James and Matolcsy, Zoltan Paul and Wells, Peter Alfred, Performance Consequences of Group Versus Individual Compensation Schemes for Senior Executives (July 6, 2008). Available at SSRN: https://ssrn.com/abstract=1163502 or http://dx.doi.org/10.2139/ssrn.1163502

Paul James Brown (Contact Author)

UTS Business School ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 2 9514 3436 (Phone)
+61 2 9514 3669 (Fax)

HOME PAGE: http://https://www.uts.edu.au/staff/paul.j.brown

Zoltan Paul Matolcsy

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
171
Abstract Views
1,976
rank
214,258
PlumX Metrics