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Agency Problem II and Convergence in CEO Pay

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  • Janto Haman
  • Hristos Doucouliagos

    ()

  • Michael Graham

Abstract

Convergence in CEO pay occurs when pay differentials narrow over time. We analyze and compare differences in the rate of convergence in CEO pay of Australian listed firms with high shareholding concentration (HSC) and without, for the period 1992 to 2009. We find zero and negative pay-for-performance and pay-for-firm size associations in HSC firms, indicating entrenchment and suboptimal CEO contract design. In contrast, positive pay-for-performance effects exist in non-HSC firms. The rate of convergence in CEO pay is higher in HSC firms. While there is relatively strong investor protection, our findings indicate that Australian HSC firms face high private benefits of control and one avenue for extracting these benefits is through a higher rate of convergence in CEO pay.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2012_5.pdf
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Bibliographic Info

Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2012_5.

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Date of creation: 16 Nov 2012
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Handle: RePEc:dkn:econwp:eco_2012_5

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Related research

Keywords: Agency Problem II; CEO Pay; Convergence; Shareholding Concentration;

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