Executive compensation and the financial performance of Polish listed companies from the corporate governance perspective

• Authors: Artur Sajnóg , Anna Rogozińska-Pawełczyk

Abstracts

EN

Research background: The level of compensation earned by CEOs and the relationship between executive pay and companies? performance is one of the most widely studied issues in the corporate governance literature. Studies conducted in the last several decades have provided evidence that CEO pay should be aligned with accounting financial measures. Purpose of the article: The main purpose of this paper is to determine the relationship between executive compensation and organizational financial performance. In particular, the effect of net income and comprehensive income as the accounting measures of financial performance on executive compensation is compared. Methods: The research comprised listed companies on the Warsaw Stock Exchange (WSE). The role and effect of accounting financial measures on executive compensation are analyzed based on three regression models. The period of analysis spanned ten years, from 2009 to 2018. Findings & value added: There are three conclusions that can be drawn from the study. Firstly, executive compensation in the analyzed companies largely depends on the accounting measures of financial performance, based on net income and comprehensive income (excluding ROE). Secondly, its level is significantly and positively influenced by the company?s size, Tobin?s Q ratio, debt ratio, and dividend rate. Thirdly, comprehensive income has a stronger effect on executive compensation than net income. Our findings add some potentially noteworthy dimensions to the economic literature on corporate governance, which is especially important to apply in the CEE region and other emerging economies. The Anglo-American assumption of corporate governance and executive compensation policy might not be suitable for the realities in much of the world.

Keywords

EN

executive compensation; corporate governance; financial performance; comprehensive income; Polish listed companies

• Publisher: Instytut Badań Gospodarczych
• Journal: Equilibrium. Quarterly Journal of Economics and Economic Policy
• Year: 2022
• Volume: 17
• Issue: 2
• Pages: 459-480

Dates

published

2022

Contributors

author

Artur Sajnóg

• University of Lodz

• https://orcid.org/0000000194758848

author

Anna Rogozińska-Pawełczyk

• University of Lodz

• https://orcid.org/0000000293766915

References

• Abdalkrim, G. (2019). Chief executive officer compensation, corporate govern-ance and performance: evidence from KSA firms. Corporate Governance, 19(6), 1216?1235. doi: 10.1108/CG-09-2017-0228.
• Adu-Ameyaw, E., Danso, A., Acheampong, S., & Akwei, C. (2021), Executive bonus compensation and financial leverage: do growth and executive owner-ship matter? International Journal of Accounting & Information Management, 29(3), 392?409. doi: 10.1108/IJAIM-09-2020-0141.
• Amarou, Y., & Bensaid, M. (2017). The impact of firm performance on executive compensation in France. Mediterranean Journal of Social Sciences, 8(2), 63?69. doi: 10.5901/mjss.2017.v8n2p63.
• Amewu, G., & Alagidede, I. P. (2021). Mergers, executive compensation and firm performance: the case of Africa. Managerial and Decision Economics, 42(2), 407?436. doi: 10.1002/mde.3244.
• Ascherl, C., Schrand, L., Schaefers, W., & Dermisi, S. (2019). The determinants of executive compensation in US REITs: performance vs. corporate govern-ance factors. Journal of Property Research, 36(4), 313?342, doi: 10.1080/0959991 6.2019.1653955.
• Balcerzak, A. P. (2016). Multiple-criteria evaluation of quality of human capital in the European Union countries. Economics & Sociology, 9(2), 11?26. doi: 10.14 254/2071-789X.2016/9-2/1.
• Baltagi, B. H. (2005). Econometric analysis of panel data. Chichester-England: Wiley, John & Sons.
• Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3?37. doi: 10.1016/S0165-4101(97)00014-1.
• Borrenbergs, J., Vieira, R., & Georgakopoulos, G. (2017). Remuneration commit-tees? gender composition as a determinant of executive board compensation structure. International Business Research, 10(2), 135?146. doi: 10.5539/ibr. v10n2p135.
• Boschen, J. F., & Smith, K. 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, 68(4), 577?608. doi: 10.1086/296677.
• Bratten B., Causholli M., & Khan U. (2016). Usefulness of fair values for predict-ing banks? future earnings: evidence from other comprehensive income and its components. Review of Accounting Studies, 21(1), 280?315. doi: 10.1007/s111 42-015-9346-7.
• Brick, I. E., Palmon, O., & Wald, J. K. (2006). CEO compensation, director com-pensation and firm performance: evidence of Cronyism? Journal of Corporate Finance, 12(3), 403?423. doi: 10.2139/ssrn.303574.
• Chambers, D., Linsmeier, T. J., Shakespeare, C., & Sougiannis, T. (2007). An evaluation of SFAS no. 130 comprehensive income disclosures. Review of Accounting Studies, 12(4), 557?593. doi: 10.1007/s11142-007-9043-2.
• Chen, C., & Hassan, A. (2022). Management gender diversity, executives com-pensation and firm performance. International Journal of Accounting & Information Management, 30(1), 115?142. doi: 10.1108/IJAIM-05-2021-0109.
• Croson, R., & Gneezy U. (2009). Gender differences in preferences. Journal of Economic Literature, 47(2), 448?474. doi: 10.1257/jel.47.2.448.
• Cui, X., Xu, L., Zhang, H., & Zhang, Y. (2021). Executive compensation and firm performance: evidence from cross?listed AH?share firms. International Jour-nal of Finance & Economics, 26(1), 88?102. doi: 10.1002/ijfe.1778.
• Dias, A., Vieira, V., & Figlioli, B. (2020). Tracing the links between executive compensation structure and firm performance: evidence from the Brazilian market. Corporate Governance, 20(7), 1393?1408. doi: 10.1108/CG-05-2020-0199.
• Ding, D. K., & Chea, Y. E. (2021). Executive compensation and firm performance in New Zealand: the role of employee stock option plans. Journal of Risk and Financial Management, 14(1), 31. doi: 10.3390/jrfm14010031.
• Farooque, O., Buachoom, W., & Hoang, N. (2019). Interactive effects of execu-tive compensation, firm performance and corporate governance: evidence from an Asian market. Asia Pacific Journal of Management, 36(4), 1111?1164. doi: 10.1007/s10490-018-09640-2.
• Hsiao, C. (2003). Analysis of panel data. Cambridge-New York: Cambridge Uni-versity Press.
• Iwu-Egwuonwu, R. Ch. (2010). Some empirical literature evidence on the effects of independent directors on firm performance. Journal of Economics and International Finance, 2(9), 190?198. doi: 10.2139/ssrn.1654524.
• Jensen, M. C., & Murphy, K. J. (1990). CEO incentives ? it?s not how much you pay, but how. Journal of Applied Corporate Finance, 3(3), 138?153. doi: 10.11 11/j.1745-6622.1990.tb00207.x
• Jerzemowska, M., Golec, A., Gabriel, B., Martyniuk, O., & Sokołowska, E. (2013). Corporate governance in Poland ? strengths, weaknesses and challeng-es. economic challenges in Enlarged Europe. In 5th international conference, 16?18 June 2013. Tallinn: Tallinn University of Technology.
• Kato, T., & Kubo, K. (2006). CEO compensation and firm performance in Japan: evidence from new panel data on individual CEO pay. Journal of Japanese and International Economies, 20(1), 1?19. doi: 10.1016/j.jjie.2004.05.003.
• Kayani, U. N., & Gan, Ch. (2022). Executive compensation and firm performance relationship. Review of Pacific Basin Financial Markets and Policies, 25(1), 2250008. doi: 10.1142/S0219091522500084.
• Ke, B., Petroni, K., & Safieddine, A. (1999). Ownership concentration and sensi-tivity of executive pay to accounting performance measures: evidence from publicly and privately-held insurance companies. Journal of Accounting and Economics, 28(2), 185?209. doi: 10.1016/S0165-4101(99)00021-X.
• Kliestik, T., Valaskova, K., Nica, E., Kovacova, M., & Lazaroiu, G. (2020). Ad-vanced methods of earnings management: monotonic trends and change-points under spotlight in the Visegrad countries. Oeconomia Copernicana, 11(2), 371?400. doi: 10.24136/oc.2020.016.
• Le, C. H. A., Shan, Y., & Taylor, S. (2020). Executive compensation and financial performance measures: evidence from significant financial institutions. Australian Accounting Review, 94(30), 159?177. doi: 10.1111/auar.12315.
• Lee, J., Lee, S. J., Choi, S., & Kim, S. (2020). The usefulness of other comprehen-sive income for predicting future earnings. Journal of Asian Finance, Economics and Business, 7(5), 31?40. doi: 10.13106/JAFEB.2020.VOL7.NO5 .031.
• Lin, W. T., & Shi, J. (2020). Chief executive officer compensation, firm perfor-mance, and strategic coopetition: a seemingly unrelated regression approach. Managerial and Decision Economics, 41(1), 130?144. doi: 10.1002/mde.3098.
• Liu, S., Qi, H., & Xie, Y. A. (2020). Executive compensation and capital struc-ture. Applied Economics, 52(8), 825?838. doi: 10.1080/00036846.2019.1659927.
• López-Quesada, E., Camacho-Mi?ano, M.-d., & Idowu, S. O. (2018). Corporate governance practices and comprehensive income. Corporate Governance, 18(3), 462?477. doi: 10.1108/CG-01-2017-0011.
• Mačerinskien?, I., & Survilait?, S. (2019). Company?s intellectual capital impact on market value of Baltic countries listed enterprises. Oeconomia Copernica-na, 10(2), 309?339. doi: 10.24136/oc.2019.016.
• Mäkinen, M. (2005). CEO compensation, firm size and firm performance: evi-dence from Finnish panel data. Research Institute of the Finnish Economy, 1084, 1?38.
• OECD (2009). Corporate governance and financial crisis. Key Findings and Main Messages. OECD, 31?40.
• Otomasa, S., Shiiba, A., & Shuto, A. (2020). Management earnings forecasts as a performance target in executive compensation contracts. Journal of Accounting, Auditing & Finance, 35(1), 139?167. doi: 10.1177/0148558X1769 6764.
• Ozkan, N. (2011). CEO Pay?for?performance sensitivity and corporate govern-ance: an empirical investigation of UK panel data. European Financial Management, 17(2), 260?285. doi: 10.1111/j.1468-036X.2009.00511.x.
• Park, J., & Lee, D. Y. (2018). A study on the effect of comprehensive income to management compensation. Journal of Education for Business, 32, 175?202. doi: 10.34274/krabe.2018.32.5.008.
• Park, K. (2019). Does peer firm executive compensation affect earnings manage-ment? Managerial Finance, 45(1), 54?71. doi: 10.1108/MF-04-2018-0148.
• PwC (2017). The psychology of motivation. Report. Warsaw: London School of Economics and Political Science.
• Pylypenko, H., Fedorova, N., Huzenko, I., & Naumenko, N. (2020). Paradoxes of economic development: science and innovation in the modern world. Scien-tific Bulletin of National Mining University, 2, 153?159. doi: 10.33271/nvngu/2020-2/153.
• Qi, W. (2021). Fair value measurement and executive compensation contract. In S. Pei (Ed.). 2021 4th international conference on global economy, finance and humanities research (GEFHR 2021). Clausius Scientific Press. Retrieved form https://www.clausiuspress.com/conference/proceeding/GEFHR2021.html.
• Raithatha, M., & Komera S. (2016). Executive compensation and firm perfor-mance: evidence from Indian firms. IIMB Management Review, 28(3), 160?169. doi: 10.1016/j.iimb.2016.07.002.
• Ramond, O., Casta, J. F., & Lin, S. (2007). Value relevance of comprehensive income: evidence from major European capital markets. Lisbon: European Accounting Association.
• Sahakiants, I., & Festing, M. (2019). The use of executive share-based compensa-tion in Poland: investigating institutional and agency-based determinants in an emerging market. International Journal of Human Resource Management, 30(6), 1036?1057. doi: 10.1080/09585192.2016.1172652.
• Sajnóg, A. (2019). Executive compensation and comprehensive income: evidence from Polish listed companies. Oeconomia Copernicana, 10(3), 493?509. doi: 10.24136/oc.2019.024.
• Sigler, J. (2011). CEO compensation and company performance. Business and Economics Journal, 2, 1?8.
• Svabova, L., & Durica, M. (2019). Being an outlier: a company non-prosperit sign? Equilibrium. Quarterly Journal of Economics and Economic Policy, 14(2), 359?375. doi: 10.24136/eq.2019.017.
• Wang, Ch., Zhang, S., Ullah, S., Ullah, R., & Ullah, F. (2021). Executive compen-sation and corporate performance of energy companies around the world. Energy Strategy Reviews, 38, 100749. doi: 10.1016/j.esr.2021.100749.
• Warsaw Stock Exchange (2002). Code of best practice for WSE listed companies 2002. Warsaw: WSE.
• Yamina, A., & Mohamed, B. (2017). The impact of firm performance on execu-tive compensation in France. Mediterranean Journal of Social Sciences, 8(2), 62?69. doi: 10.5901/mjss.2017.v8n2p63.

Identifiers

DOI

10.24136/eq.2022.016

Biblioteka Nauki

22443163