Corporate Governance and the CEO Pay-Performance Link: Australian Evidence

International Review of Finance, Vol. 13, 2013

26 Pages Posted: 2 Aug 2010 Last revised: 24 Apr 2014

See all articles by Emma Schultz

Emma Schultz

Australian National University (ANU)

Gloria Yuan Tian

University of Lethbridge Calgary Campus; Financial Research Network (FIRN)

Garry J. Twite

University of Melbourne - Department of Finance; University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: February 12, 2013

Abstract

We examine the influence of corporate governance mechanisms, namely blockholdings and board structure, on CEO pay-performance sensitivity in listed Australian firms. Results highlight blockholders’ role in shaping observed pay-performance associations and their impact varying with their independence and relative magnitude of ownership. Monitoring blockholders increase the sensitivity of long-term at-risk pay to performance, better aligning manager and shareholder interests. However, consistent with a shorter investment horizon, insider blockholders increase (decrease) the responsiveness of cash bonuses (long-term at-risk pay). Finally, consistent with them affording less effective monitoring, larger boards raise (lower) the sensitivity of known pay (long-term at-risk pay) to performance.

Keywords: Executive Compensation, Pay-Performance, Corporate Governance, Ownership Concentration, Blockholder, Board of Directors, Australia

JEL Classification: G30

Suggested Citation

Schultz, Emma and Tian, Gloria Yuan and Twite, Garry J. and Twite, Garry J., Corporate Governance and the CEO Pay-Performance Link: Australian Evidence (February 12, 2013). International Review of Finance, Vol. 13, 2013, Available at SSRN: https://ssrn.com/abstract=1652210 or http://dx.doi.org/10.2139/ssrn.1652210

Emma Schultz

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Gloria Yuan Tian

University of Lethbridge Calgary Campus ( email )

6th floor, 345 - 6 Ave SE
Calgary, Alberta T2G 4V1
Canada

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Garry J. Twite (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

University of Melbourne - Faculty of Business and Economics ( email )

Department of Finance
Melbourne, VIC 3010
Australia
+61 3 90356172 (Phone)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia