CEO’s Remuneration and Performance of Firm: Evidence from Emerging Economy

Abstract

From the perspective of an emerging market like Pakistan, this study looks into the influence of a firm’s performance over the compensation of the Chief Executive Officers (CEO). For this purpose, the sample data of 170 non-financial companies ranging from 2008 to 2018 enlisted on the Pakistan Stock Exchange is separated into groups based on firm size, ownership type (family & non-family), and levels of corporate governance so as to analyze pay-performance link. Performance is assessed using return on equity, return on assets, and Tobin's Q, along with firm size, debt ratio, and stock beta serving as the control variables. The results of the study are determined by the Fixed Effect Model and Dynamic GMM-Difference. The results show that a company's performance has a significant impact on the CEO's remuneration. Vice versa results are found on the firm’s size and debt ratio. Furthermore, the results show that family businesses pay their CEOs for performing more in case of return on equity. Similarly, in the case of Tobin Q, return on asset, return on equity, and corporate governance, mixed conclusions are drawn in the case of small, medium, and large size firms.