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

P. Duffhues; Mohammed Rezaul Kabir

doi:10.1016/j.mulfin.2007.02.004

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

P. Duffhues, Mohammed Rezaul Kabir

Research output: Contribution to journal › Article › Academic › peer-review

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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 language	English
Pages (from-to)	45-60
Number of pages	16
Journal	Journal of multinational financial management
Volume	18
Issue number	1
DOIs	https://doi.org/10.1016/j.mulfin.2007.02.004
Publication status	Published - 2008

Keywords

METIS-276973

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10.1016/j.mulfin.2007.02.004

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Duffhues, P., & Kabir, M. R. (2008). Is the pay–performance relationship always positive? Evidence from the Netherlands. Journal of multinational financial management, 18(1), 45-60. https://doi.org/10.1016/j.mulfin.2007.02.004

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