Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

Clement Olalekan Olaniyi*, Ademola Obafemi Young, Xuan Vinh Vo, Mamdouh Abdulaziz Saleh Al-Faryan

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This study examines the role of institutional quality and its threshold in the sensitivity of CEO pay to firm performance in an emerging market economy, using a generalized method of moments, Driscoll and Kraay's nonparametric covariance matrix estimator, and robust dynamic panel threshold. Bureaucratic quality and corruption control weaken performance-based pay for CEOs, while law and order strengthen it. The overall institutions allow boardroom backscratching which biases executive compensation contracts. The study shows that the country operates below the institutional quality threshold values required to spur performance-based pay for CEOs. The study concludes that institutions matter in CEO pay-firm performance nexus.

    Original languageEnglish
    Number of pages18
    JournalManagerial and Decision Economics
    Early online date16 Mar 2022
    DOIs
    Publication statusEarly online - 16 Mar 2022

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