Open AccessDirector’s monitoring effectiveness and CEO compensation
Author(s) -
CheeWooi Hooy,
Tee Chwee-Ming
Publication year - 2014
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv11i2p10
Subject(s) - corporate governance , fiduciary , executive compensation , business , accounting , dividend , compensation (psychology) , principal–agent problem , agency (philosophy) , power (physics) , finance , law , psychology , duty , epistemology , political science , psychoanalysis , physics , quantum mechanics , philosophy
This paper examines the monitoring effectiveness of independent and non independent directors on a CEO pay-performance of Malaysian financial firms from 2002-2009. It is based on the agency and managerial power theory. The former states that under optimal contract pay should be aligned to performance, while the latter postulates that powerfully entrenched CEO can influence captive directors to award generous compensation package. Our empirical results show (1) a high CEO pay-dividend sensitivity while market measurement plays no part in influencing CEO pay; (2) both the independent and non independent directors have failed in their fiduciary role as internal monitor, suggesting the dominance of managerial power in the board; (3) the appointment of independent directors is merely a move to fulfill the minimum standards of the best practices of corporate governance.