While this study supports the view that executive pay and firm performance are positively related, it also shows how the variations in corporate governance systems substantially impact this relationship, highlighting the importance of the managerial power approach.
Authors
Madhur Bhatia, Assistant Professor, Jindal School of International Affairs, O.P. Jindal Global University, Sonipat, Haryana, India.
Rachita Gulati, Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, India; Asian Development Bank Institute, Tokyo, Japan
Sunil Kumar, Faculty of Economics, South Asian University, New Delhi, India.
Summary
The empirical research on executive pay has garnered growing interest in recent years; however, these studies produce inconclusive evidence. Thereby, this study endeavors to quantitatively synthesize the results of the 137 research studies on the performance-pay relationship while factoring both institutional contexts (cross-sectional heterogeneity) and institutional dynamics (longitudinal heterogeneity). The meta-regression results corroborate the agency’s viewpoint that a positive and statistically significant relation exists between executive pay and firm performance.
However, the variations in corporate governance systems substantially impact the relationship between performance and remuneration, highlighting the importance of the managerial power approach. As determined by the temporal analysis, this association has weakened over time, which is substantially attributable to the development of sound regulatory policies, the growing significance of alternative governance practices, analytical approaches, and firm nature.
Furthermore, it is noted that with the convergence in governance practices, the moderating impact of different institutional contexts has become statistically less significant over time. Our results unequivocally demonstrate the critical role that institutional dynamics play in moderating the performance-pay relationship. This way, the study answers unresolved queries about the performance-pay association.
Published in: Asia Pacific Journal of Management
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