Title

The determinants of top management pay

Document Type

Journal article

Source Publication

Omega

Publication Date

1-1-1999

Volume

27

Issue

6

First Page

617

Last Page

635

Keywords

Compensation, Incentives, Management performance, Top management

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.

DOI

10.1016/S0305-0483(99)00021-3

Print ISSN

03050483

E-ISSN

18735274

Publisher Statement

Copyright © 1999 Elsevier Science Ltd

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Firth, M., Tam, M., & Tang, M. (1999). The determinants of top management pay. Omega, 27(6), 617-635. doi: 10.1016/S0305-0483(99)00021-3