CEO Compensation: A Brief Study from Indonesia

Wulandari Harjanti, Ali Farhan

Abstract


Each country has different characteristics regarding the organizational behavior of its executives; Japan, Sweden, America, Norway and other countries have different patterns of compensating CEOs. This article is intended to explain the relationship between financial performance (ROE and ROA) and non-financial variables (Family ownership and CEO Power) on CEO compensation. The sample used in this research is 41 companies listed on the Indonesian stock exchange in 2017 – 2019. The method used is quantitative with multiple regression analysis. The results of the analysis show that ROE, Family Ownership, and CEO Power have a positive and significant effect on CEO Compensation, while ROA has a negative and significant effect on CEO Compensation.


Keywords


corporate governance; CEO compensation; family ownership; agency theory

Full Text:

PDF

References


Banker, R. D. and Datar, S. M. (1989). Sensitivity, precision, and linear aggregation of signals for performance evaluation, Journal of Accounting Research.

Bebchuck, L.A., dan J.M. Fried. (2003). Executive Compensation as an Agency Problem. Journal of Economic Perspectives, Vol. 17 No. 3, page 71-92

Cheng, Yingmei, Jarrad Harford, and Tianming Tim Zhang. (2010). Bonus-driven repurchases. Journal of Financial and Quantitative Analysis 50.3 2010: 447-475

Duffhues, P. and Kabir, R., (2008). Is the pay-performance relationship always positive?: Evidence from the Netherlands. Journal of Multinational Financial Management, 18(1), 45-60.

Feltham, G. A. and Xie, J. Z. (1994) Voluntary financial disclosure in and entry game with continua of types, Contemporary Accounting Research, 9(Fall). Page: 46–80

Ghozali, D. A. (2015). Pengaruh Struktur Kepemilikan, Kinerja, Dan Risiko Terhadap Kompensasi Eksekutif. Skripsi FE Undip (Vol. 4, Hal 1-69).

Gaver, J.J., and K.M. Gaver. (1993). Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Accounting and Economics. 16:125-160

Ghosh, A. (2006). Determination of executive compensation in an emerging economy: Evidence from India. Emerging Markets Finance & Trade, 42(3), 66–90. https://doi.org/10.2753/REE1540-496X420304

Hemmer, T. (1996). On the design and choice of modern management accounting measures, Journal of Management Accounting Research, 8: 87–116

Holmstrom, B. (1979). Moral hazard and observability. The Bell Journal of Economics, 10, 74 91. https://doi.org/10.2307/3003320

Ho, S.S.M., K.C.K. Lam, and H. Sami. (2004). The Investment Opportunity Set, Director Ownership, and Corporate Policies: Evidence from an Emerging Market. Journal of Corporate Finance 10: 383-408

Ichsan, R. et al. (2021). Determinant of Sharia Bank's Financial Performance during the Covid-19 Pandemic. Budapest International Research and Critics Institute-Journal (BIRCI-Journal). P. 298-309.

Ittner, C. D., Larcker, D. F. and Rajan, M. V. (1997). The choice of performance measures in annual bonus contracts, The Accounting Review, 72(2): 231–55.

Krolick, D. L. (2005). The relevance of financial statement information for executive performance evaluation: evidence from choice of bonus plan accounting performance measures, The International Journal of Accounting, 40: 115–32.

Jensen, M. C. and Meckling, W. H. .(1976). Theory of The Firm : Managerial Behaviour, Agency Cost and Ownership Structure. Journal of Financial Economics, 3(4), pp. 305–306.

Mardiyati, U., Devi, M. S. and Suherman .(2013). ‘Pengaruh Kinerja Perusahaan, Corporate Governance , dan Shareholder Payout Terhadap Kompensasi Eksekutif (The Impact of firms performance, Corporate governance, and shareholder payout on executives compensation)’, Jurnal Riset Manajemen Sains Indonesia (JRMSI), 4(2), pp. 167–183.

Murphy, K. J. and Oyer, P. (2001). Discretion in executive incentive contracts: Theory and evidence, 48. Working paper, University of Southern California.

Miyienda, B., Oirere, C. O., & Miyogo, J. (2013). The relationship between director remuneration and performance of firms listed in the Nairobi Securities Exchange. The International Journal of Social Sciences, 15(1), 1–17

Ozkan, N., (2007). CEO Compensation and Firm Performance: An Empirical Investigation ofUK Panel Data. SSRN eLibrary. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1102703 [Accessed April 8, 2010].

Prendergast, C. (1999) The provision of incentives in firms, Journal of Economic Literature, 37(1): 7–63.

Raithatha, M., & Komera, S. 2016. Executive compensation and firm performance: Evidence from Indian firms. IIMB Management Review, 28. 160–169. https://doi.org/10.1016/j.iimb.2016.07.002

Randoy, Trond. Nielsen, Jim. 2002. Company Performance, Corporate Governance, and CEO Compensation in Norway and Sweden. Journal of Management and Governance 6: 57–81, 2002

Said, A. A., HassabElnaby, H. R. and Wier, B. 2003. An empirical investigation of the performance consequences of non-financial measures, Journal of Management Accounting Research, 15: 193–223.

Said, A. A., HassabElnaby, H. R. and Wier, B. (2005). The retention of non-financial performance measures in compensation contracts, Journal of Management Accounting Research, 17, 23–42

Scott, W.R. (2012). Financial Accounting Theory. 6th Edition. Toronto: Pearson Canada, Inc.

Smith, C.W. and R.L. Watts. (1992). The Investment Opportunity Set and Corporate Financing, Deviden, and Compensation Policies. Journal of Financial Economics 32:263-292

Suherman, Fitriawan, R. and Ahmad, G. N. (2015). ‘Pengaruh Kinerja Perusahaan, Kepemilikan Institusi, dan Komisaris Independen terhadap Total Kompensasi : Studi pada Perusahaan yang Terdaftar di LQ45 Tahun 2009 – 2012’, Jurnal Aplikasi Manajemen, 13(13), pp. 516 526.

Victoravich, L. M., Xu, P. and Gan, H. (2012). ‘Institutional ownership and executive compensation: Evidence from US banks during the financial crisis’, Managerial Finance, 39(1), pp. 28 46. doi: 10.1108/03074351311283559.

Zoghlami, Faten. (2020). Does CEO compensation matter in boosting firm performance? Evidence from listed French firms. Manage Decis Econ. 2020;1–13. Wiley.




DOI: https://doi.org/10.33258/birci.v5i2.5184

Article Metrics

Abstract view : 63 times
PDF - 22 times

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

 

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.