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The determinants of top management pay

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  • Firth, M.
  • Tam, M.
  • Tang, M.

Abstract

Agency theory argues that companies need to structure their top management pay so as to attract, retain, motivate, and reward senior executives. It is implicit in this literature that managers should be rewarded for performance and that company size should not be a significant determinant of compensation. Empirical evidence in many countries has concluded, however, that size is a major determinant of management remuneration and the pay-for-performance link is very weak. This study examines the determinants of senior executives' remuneration and bonus payments in Hong Kong companies using recently available data. We examine both the level of pay and changes in pay. Corporate size is found to be a major explanator of remuneration levels and of changes in the pay of the CEO and executive directors. Accounting profitability is also a significant explanator of compensation. Performance, as measured by stock returns, has little or no statistically significant relationship with pay; in fact, some of the results show negative relationships. Some share ownership characteristics have influences on the levels of remuneration. In particular, share ownership by directors and share ownership by institutional investors moderate the compensation levels. In contrast, corporate governance variables have little association with change in pay. Overall, the results imply agency arguments that advocate pay-for-performance compensation schemes are not major factors in setting top management remuneration in Hong Kong.

Suggested Citation

  • Firth, M. & Tam, M. & Tang, M., 1999. "The determinants of top management pay," Omega, Elsevier, vol. 27(6), pages 617-635, December.
  • Handle: RePEc:eee:jomega:v:27:y:1999:i:6:p:617-635
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    References listed on IDEAS

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    Cited by:

    1. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 693-714, September.
    2. Nor Shaipah Abdul Wahab Author_Email: shaipah@uum.edu.my, 2011. "Directors’ Pay: Significance As A Tax-Motivated Expense Allocation," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-218, Conference Master Resources.
    3. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2007. "How ownership and corporate governance influence chief executive pay in China's listed firms," Journal of Business Research, Elsevier, vol. 60(7), pages 776-785, July.
    4. repec:eee:riibaf:v:42:y:2017:i:c:p:658-673 is not listed on IDEAS
    5. Daniela Machado & Maria Elisabete Ramos & Pedro Godinho, 2015. "A remuneração dos administradores nas sociedades cotadas: determinantes e enquadramento jurídico," GEMF Working Papers 2015-21, GEMF, Faculty of Economics, University of Coimbra.
    6. Li, Donghui & Moshirian, Fariborz & Nguyen, Pascal & Tan, Liwen, 2007. "Corporate governance or globalization: What determines CEO compensation in China?," Research in International Business and Finance, Elsevier, vol. 21(1), pages 32-49, January.

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