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Directors' Remuneration and Performance in Australian Banking

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Author Info
Hristos Doucouliagos () (Deakin University)
Saeed Askary
Janto Haman () (Monash University)

Additional information is available for the following registered author(s):

Abstract

This paper explores the relationship between directors’ and Chief Executive Officers’ pay and performance within Australian banking, using panel data for the 1992-2005 period. Several earnings models are estimated, using different dependent variables, alternate measures of performance and different estimation techniques. The results indicate an absence of a contemporaneous relationship between directors’ pay and firm performance, and no association with prior year performance. However, there is a more distant pay-performance relationship, with total directors’ pay having a robust positive association with earnings per share lagged two years, as well as with ROE lagged two years. The other key determinants of directors’ pay in Australian banking are bank specific managerial policies, lags in the administration of pay, bank size, directors’ age and directors’ stock ownership. In contrast to total directors’ pay, the evidence confirms a strong positive and direct association between CEO remuneration and prior year bank performance. The pay-performance association is stronger and more direct for CEO remuneration than it is for total directors’ remuneration. The responsiveness of CEO pay with respect to bank performance appears to have increased over time.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2006-11eco.pdf
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Publisher Info
Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2006_11.

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Length: 34 pages
Date of creation: 29 Oct 2006
Date of revision:
Handle: RePEc:dkn:econwp:eco_2006_11

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Related research
Keywords: Corporate Governance; Directors’ Remuneration; Pay and Performance;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance1," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March. [Downloadable!] (restricted)
  2. Conyon, Martin J, 1998. "Directors' Pay and Turnover: An Application to a Sample of Large UK Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(4), pages 485-507, November.
  3. Chung-Hua Shen & Yuen-Hsiang Chang, 2006. "Do Regulations Affect Banking Performance? Government Governance May Matter," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 92-105, 01. [Downloadable!] (restricted)
  4. Stephen J. Perkins & Chris Hendry, 2005. "Ordering Top Pay: Interpreting the Signals," Journal of Management Studies, Blackwell Publishing, vol. 42(7), pages 1443-1468, November. [Downloadable!] (restricted)
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  6. Lucian Bebchuk & Jesse Fried, 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series 1106, Berkeley Olin Program in Law & Economics. [Downloadable!]
  7. Brunello, Giorgio & Graziano, Clara & Parigi, Bruno, 2001. "Executive compensation and firm performance in Italy," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 133-161, January. [Downloadable!] (restricted)
  8. Kato, Takao & Kubo, Katsuyuki, 2006. "CEO compensation and firm performance in Japan: Evidence from new panel data on individual CEO pay," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 1-19, March. [Downloadable!] (restricted)
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  11. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April. [Downloadable!] (restricted)
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  15. Boschen, John F & Smith, Kimberly J, 1995. "You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance," Journal of Business, University of Chicago Press, vol. 68(4), pages 577-608, October. [Downloadable!] (restricted)
  16. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November. [Downloadable!] (restricted)
    Other versions:
  17. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July. [Downloadable!] (restricted)
  18. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June. [Downloadable!] (restricted)
    Other versions:
  19. Robert Gibbons & Kevin J. Murphy, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," NBER Working Papers 9813, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April. [Downloadable!] (restricted)
    Other versions:
  22. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer. [Downloadable!] (restricted)
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