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Excess Compensation and Corporate Governance

이은서|최우석|Maria A. Leach-López
한국국제회계학회 (Korea International Accounting Association)|2019.08|국제회계연구 (Korea International Accounting Review)|제86호|pp. 165-188|DOI 10.21073/kiar.2019..86.008

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임원Directors기업 지배구조Excess CompensationGovernance Structures초도임원보수

초록

Excess compensation of CEOs does not by itself impose a significant problem. However, a serious business ethical violation would occur if excess compensation is related to a large extraction of rent. In this study, we investigate how governance structures are associated with excess cash compensation, which is defined as observed cash compensation less expected cash compensation derived from the standard economic determinants. Five measures of governance structures are examined in this study as follows: (1) owner-managers; (2) block-holders; (3) foreign shareholders; (4) financial institutions; and (5) chaebols, business conglomerates in Korea controlled by family. Based on 6,823 observations in Korea obtained over a 10-year period, the results indicate that governance structures differentially affect excess cash compensation depending on the views of the role of excess cash compensation. Specifically, financial institutions are negatively related to excess cash compensation, implying that they consider excess cash compensation as an agency cost. By contrast, owner-managers, foreign shareholders, and chaebols are positively related to excess cash compensation, implying that they consider excess cash compensation as a performance motivator.

Abstract

Excess compensation of CEOs does not by itself impose a significant problem. However, a serious business ethical violation would occur if excess compensation is related to a large extraction of rent. In this study, we investigate how governance structures are associated with excess cash compensation, which is defined as observed cash compensation less expected cash compensation derived from the standard economic determinants. Five measures of governance structures are examined in this study as follows: (1) owner-managers; (2) block-holders; (3) foreign shareholders; (4) financial institutions; and (5) chaebols, business conglomerates in Korea controlled by family. Based on 6,823 observations in Korea obtained over a 10-year period, the results indicate that governance structures differentially affect excess cash compensation depending on the views of the role of excess cash compensation. Specifically, financial institutions are negatively related to excess cash compensation, implying that they consider excess cash compensation as an agency cost. By contrast, owner-managers, foreign shareholders, and chaebols are positively related to excess cash compensation, implying that they consider excess cash compensation as a performance motivator.

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