The determinants of top management pay

Michael Arthur FIRTH, M. TAM, M. TANG

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

    38 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)617-635
    Number of pages19
    JournalOmega
    Volume27
    Issue number6
    DOIs
    Publication statusPublished - 1 Jan 1999

    Fingerprint

    Top management
    Remuneration
    Share ownership
    Pay-for-performance
    Hong Kong
    Agency theory
    Stock returns
    Empirical evidence
    Chief executive officer
    Profitability
    Payment
    Corporate governance
    Executive remuneration
    Bonus
    Managers
    Reward
    Institutional investors
    Factors
    Company size

    Keywords

    • Compensation
    • Incentives
    • Management performance
    • Top management

    Cite this

    FIRTH, M. A., TAM, M., & TANG, M. (1999). The determinants of top management pay. Omega, 27(6), 617-635. https://doi.org/10.1016/S0305-0483(99)00021-3
    FIRTH, Michael Arthur ; TAM, M. ; TANG, M. / The determinants of top management pay. In: Omega. 1999 ; Vol. 27, No. 6. pp. 617-635.
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    FIRTH, MA, TAM, M & TANG, M 1999, 'The determinants of top management pay', Omega, vol. 27, no. 6, pp. 617-635. https://doi.org/10.1016/S0305-0483(99)00021-3

    The determinants of top management pay. / FIRTH, Michael Arthur; TAM, M.; TANG, M.

    In: Omega, Vol. 27, No. 6, 01.01.1999, p. 617-635.

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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