Is the pay–performance relationship always positive? Evidence from the Netherlands

    Research output: Contribution to journalArticleAcademicpeer-review

    47 Citations (Scopus)
    1 Downloads (Pure)

    Abstract

    This study examines the widespread belief that executive pay should reflect firm performance.We compile a hand-collected data set of compensation paid to executive directors of Dutch listed companies and analyze if executive compensation is indeed determined by firm performance. A variety of accounting-based and capital market-based performance measures are used. The analysis also encompasses both contemporaneous and lagged relationships, and controls for firm, time and industry characteristics. Our robust empirical
    analysis fails to detect a positive pay–performance relationship. The finding questions the conventional wisdom that executive pay helps to align shareholder interests with those of managers. It is consistent with the view that powerful managers can influence their own pay. The results of the study suggest that other means of resolving agency problems and novel explanations of executive compensation may provide useful insights.
    Original languageEnglish
    Pages (from-to)45-60
    Number of pages16
    JournalJournal of multinational financial management
    Volume18
    Issue number1
    DOIs
    Publication statusPublished - 2008

    Fingerprint

    Managers
    Firm performance
    Executive compensation
    The Netherlands
    Executive pay
    Agency problems
    Listed companies
    Industry characteristics
    Shareholders
    Capital markets
    Wisdom
    Performance measures

    Keywords

    • METIS-276973

    Cite this

    @article{71352de44c5c4e63bac50f2ac8b57d0b,
    title = "Is the pay–performance relationship always positive?: Evidence from the Netherlands",
    abstract = "This study examines the widespread belief that executive pay should reflect firm performance.We compile a hand-collected data set of compensation paid to executive directors of Dutch listed companies and analyze if executive compensation is indeed determined by firm performance. A variety of accounting-based and capital market-based performance measures are used. The analysis also encompasses both contemporaneous and lagged relationships, and controls for firm, time and industry characteristics. Our robust empiricalanalysis fails to detect a positive pay–performance relationship. The finding questions the conventional wisdom that executive pay helps to align shareholder interests with those of managers. It is consistent with the view that powerful managers can influence their own pay. The results of the study suggest that other means of resolving agency problems and novel explanations of executive compensation may provide useful insights.",
    keywords = "METIS-276973",
    author = "P. Duffhues and Kabir, {Mohammed Rezaul}",
    year = "2008",
    doi = "10.1016/j.mulfin.2007.02.004",
    language = "English",
    volume = "18",
    pages = "45--60",
    journal = "Journal of multinational financial management",
    issn = "1042-444X",
    publisher = "Elsevier",
    number = "1",

    }

    Is the pay–performance relationship always positive? Evidence from the Netherlands. / Duffhues, P.; Kabir, Mohammed Rezaul.

    In: Journal of multinational financial management, Vol. 18, No. 1, 2008, p. 45-60.

    Research output: Contribution to journalArticleAcademicpeer-review

    TY - JOUR

    T1 - Is the pay–performance relationship always positive?

    T2 - Evidence from the Netherlands

    AU - Duffhues, P.

    AU - Kabir, Mohammed Rezaul

    PY - 2008

    Y1 - 2008

    N2 - This study examines the widespread belief that executive pay should reflect firm performance.We compile a hand-collected data set of compensation paid to executive directors of Dutch listed companies and analyze if executive compensation is indeed determined by firm performance. A variety of accounting-based and capital market-based performance measures are used. The analysis also encompasses both contemporaneous and lagged relationships, and controls for firm, time and industry characteristics. Our robust empiricalanalysis fails to detect a positive pay–performance relationship. The finding questions the conventional wisdom that executive pay helps to align shareholder interests with those of managers. It is consistent with the view that powerful managers can influence their own pay. The results of the study suggest that other means of resolving agency problems and novel explanations of executive compensation may provide useful insights.

    AB - This study examines the widespread belief that executive pay should reflect firm performance.We compile a hand-collected data set of compensation paid to executive directors of Dutch listed companies and analyze if executive compensation is indeed determined by firm performance. A variety of accounting-based and capital market-based performance measures are used. The analysis also encompasses both contemporaneous and lagged relationships, and controls for firm, time and industry characteristics. Our robust empiricalanalysis fails to detect a positive pay–performance relationship. The finding questions the conventional wisdom that executive pay helps to align shareholder interests with those of managers. It is consistent with the view that powerful managers can influence their own pay. The results of the study suggest that other means of resolving agency problems and novel explanations of executive compensation may provide useful insights.

    KW - METIS-276973

    U2 - 10.1016/j.mulfin.2007.02.004

    DO - 10.1016/j.mulfin.2007.02.004

    M3 - Article

    VL - 18

    SP - 45

    EP - 60

    JO - Journal of multinational financial management

    JF - Journal of multinational financial management

    SN - 1042-444X

    IS - 1

    ER -