Executive Pay and Performance: The Moderating Effect of CEO Power and Governance Structure

International Journal of Human Resource Management (2016)

48 Pages Posted: 19 Jul 2016

See all articles by Collins G. Ntim

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Sarah Lindop

Aberystwyth University

Dennis A. Thomas

Aberystwyth University

Hussein Abdou

The Lancashire School of Business & Enterprise; Department of Management, Faculty of Commerce, Mansoura University

Kwaku K. Opong

University of Glasgow - Adam Smith Business School

Date Written: July 17, 2016

Abstract

This paper examines the crucial question of whether chief executive officer (CEO) power and corporate governance (CG) structure can moderate the pay-for-performance sensitivity (PPS) using a large up-to-date South African dataset. Our findings are three-fold. First, when direct links between executive pay and performance are examined, we find a positive, but relatively small PPS. Second, our results show that in a context of concentrated ownership and weak board structures; the second-tier agency conflict (director monitoring power and opportunism) is stronger than the first-tier agency problem (CEO power and self-interest). Third, additional analysis suggests that CEO power and CG structure have a moderating effect on the PPS. Specifically, we find that the PPS is higher in firms with more reputable, founding and shareholding CEOs, higher ownership by directors and institutions, and independent nomination and remuneration committees, but lower in firms with larger boards, more powerful, and long-tenured CEOs. Overall, our evidence sheds new important theoretical and empirical insights on explaining the PPS with specific focus on the predictions of the optimal contracting and managerial power hypotheses. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, pay, and performance proxies.

Keywords: executive pay, corporate performance, corporate governance, CEO power, endogeneity, South Africa

JEL Classification: G32, G34, G38

Suggested Citation

Ntim, Collins G. and Lindop, Sarah and Thomas, Dennis A. and Abdou, Hussein and Opong, Kwaku K., Executive Pay and Performance: The Moderating Effect of CEO Power and Governance Structure (July 17, 2016). International Journal of Human Resource Management (2016). Available at SSRN: https://ssrn.com/abstract=2810737

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Sarah Lindop

Aberystwyth University ( email )

Aberystwyth, SY23 3DD
United Kingdom

Dennis A. Thomas

Aberystwyth University ( email )

Aberystwyth, SY23 3DD
United Kingdom

Hussein Abdou

The Lancashire School of Business & Enterprise ( email )

The Lancashire Law School
Corporation Street
Preston, PR1 2HE
United Kingdom
00441772894700 (Phone)

Department of Management, Faculty of Commerce, Mansoura University ( email )

Mansoura, 35516
Egypt

Kwaku K. Opong

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

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