The effect of ownership concentration on CEO compensation-firm performance relationship in New Zealand

摘要

Purpose – The purpose of this paper is to investigate the effect of ownership concentration on CEO compensation and firm performance relationship in New Zealand. Design/methodology/approach – The paper applies regression analysis to data from New Zealand listed companies from 2001 to 2005. Findings – The study finds a non-linear effect of ownership concentration on CEO compensation-firm performance relationship, that is CEO compensation is negatively (positively) related to firm performance in firms with high (low) concentrated ownership structure respectively. Research limitations/implications – Results provide evidence for the proposition that ownership concentration at a high level in New Zealand does not constrain excessive management power, but exacerbates agency problems associated with executive pay. A highly concentrated ownership structure provides potential explanation for the misalignment between CEO compensation and firm performance in New Zealand. The positive effect of a low ownership concentration level on CEO compensation-firm performance relationship suggests that monitoring the efficiency of large shareholders works better at a low ownership concentration level. Originality/value – By exploring the non-linear interaction between two governance mechanisms – CEO compensation and ownership concentration – the findings of the study make contributions to the current compensation and ownership literature mainly in two ways: although the non-linearity between ownership concentration and firm value has attracted extensive research interest, little attention is given to the non-linear effect of large shareholding on the CEO compensation contract in prior studies; and, in the context of a developed country with a small financial market, there are low regulatory “drag” and virtual absence of a litigation threat to organisations, as in New Zealand. This study suggests concentrated ownership as an underlying explanation for the misalignment between CEO compensation and firm performance.