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Powerful CEOs, cash bonus contracts and firm performance

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  • Rebecca L. Bachmann
  • Anna Loyeung
  • Zoltan P. Matolcsy
  • Helen Spiropoulos

Abstract

We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex‐ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non‐financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non‐financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex‐ante bonus ratios and higher proportions of non‐financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)‐related non‐financial performance targets is positively associated with subsequent firm performance, and the use of undefined non‐financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions.

Suggested Citation

  • Rebecca L. Bachmann & Anna Loyeung & Zoltan P. Matolcsy & Helen Spiropoulos, 2020. "Powerful CEOs, cash bonus contracts and firm performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(1-2), pages 100-131, January.
    • Handle: RePEc:bla:jbfnac:v:47:y:2020:i:1-2:p:100-131
    DOI: 10.1111/jbfa.12410
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    Cited by:

    1. Chowdhury, Md Raihan Uddin & Xie, Feixue & Hasan, Md Mahmudul, 2023. "Powerful CEOs and investment efficiency," Global Finance Journal, Elsevier, vol. 58(C).
    2. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    3. Patrick Velte, 2024. "Archival research on sustainability‐related executive compensation. A literature review of the status quo and future improvements," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3119-3147, July.
    4. Clement Olalekan Olaniyi & Ademola Obafemi Young & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2022. "Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3386-3403, December.
    5. Rebecca L. Bachmann & Helen Spiropoulos, 2021. "Do females on boards affect acquisition outcomes and target selection: a replication and extension of Levi, Li and Zhang (2014)," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3427-3441, June.
    6. Ahmad, Sardar & Ullah, Subhan & Akbar, Saeed & Kodwani, Devendra & Brahma, Sanjukta, 2024. "The impact of compliance, board committees and insider CEOs on firm survival during crisis," International Review of Financial Analysis, Elsevier, vol. 91(C).
    7. M. Ángeles López‐Cabarcos & Helena Santos‐Rodrigues & Lara Quiñoá‐Piñeiro & Juan Piñeiro‐Chousa, 2023. "How to explain stock returns of utility companies from an environmental, social and corporate governance perspective," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2278-2291, September.
    8. Bachmann, Rebecca L. & Bedford, Anna & Ghannam, Samir & Yang, Jin Sug, 2023. "A shock to CEOs' external environment: terrorist attacks and CEO pay," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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