IDEAS home Printed from https://ideas.repec.org/a/iaf/journl/y2023i3p65-69.html
   My bibliography  Save this article

A Framework of Excessive Executive Compensation - An Obscured Breach in Corporate Governance Agency Contract

Author

Listed:
  • Collins C Ngwakwe

    (University of Limpopo, Polokwane, South Africa)

Abstract

Excessive executive compensation is tantamount to a breach of agency contract. There are two main problems with excessive executive compensation: excessive compensation is stealing from a shareholder's standpoint; excessive executive compensation is demoralizing to the other workers in the organization. Purpose. This paper aims to provide a conceptual framework of the antecedent and postcedent of excessive executive compensation. Approach. The paper inclines on agency theory and the attendant principal-agent contract. The paper follows a critical deconstruction approach, culminating in the development of an original conceptual framework. Finding. Through a critical deconstruction of agency theory postulation of optimal agent's response to corporate compensation structure, it emerges that this postulation may not hold in all instances given that gargantuan compensation structure has a high propensity to nurture irresistible executive financial misdemeanours to inflate profit or share price, which are the performance index of reaping the excessive compensation. This incubates ancillary agency costs to the detriment of the principal and corporate survival. Theoretical and practical value. The paper offers insight into corporate governance strategy for accounting and business law theory and practice in university business schools and for further research. In addition, corporate boards may draw insights from the theory developed in this paper, which portrays the antecedents and postcedents of executive excessive compensation. This theory will catalyse debate and rethinking of corporate compensation policies within the boards of directors. The paper offers an original contribution to the contentious agency cost issues by developing a conceptual framework of the antecedent and postcedent of excessive executive compensation - depicting obscured additional agency costs.

Suggested Citation

  • Collins C Ngwakwe, 2023. "A Framework of Excessive Executive Compensation - An Obscured Breach in Corporate Governance Agency Contract," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 65-69, September.
    • Handle: RePEc:iaf:journl:y:2023:i:3:p:65-69
    DOI: 10.33146/2307-9878-2023-3(101)-65-69
    as

    Download full text from publisher

    File URL: http://www.afj.org.ua/pdf/1007-sistema-nadmirnoi-vinagorodi-kerivnikiv-nevidome-porushennya-kontraktu-z-agentstvom-korporativnogo-upravlinnya.pdf
    Download Restriction: no
    File URL: http://www.afj.org.ua/en/article/1007/
    Download Restriction: no
    File URL: https://libkey.io/10.33146/2307-9878-2023-3(101)-65-69?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    2. Chrisostomos Florackis, 2008. "Agency costs and corporate governance mechanisms: evidence for UK firms," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(1), pages 37-59, January.
    3. Haugen, Robert A. & Senbet, Lemma W., 1979. "New Perspectives on Informational Asymmetry and Agency Relationships," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(4), pages 671-694, November.
    4. Chrisostomos Florackis, 2008. "Agency costs and corporate governance mechanisms: evidence for UK firms," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(1), pages 37-59, January.
    5. Jeffrey T. Macher & John W. Mayo & Jack A. Nickerson, 2011. "Regulator Heterogeneity and Endogenous Efforts to Close the Information Asymmetry Gap," Journal of Law and Economics, University of Chicago Press, vol. 54(1), pages 25-54.
    6. Chrisostomos Florackis, 2008. "Agency costs and corporate governance mechanisms: evidence for UK firms," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(1), pages 37-59, January.
    7. repec:eme:ijlma0:03090550810852086 is not listed on IDEAS
    8. Kalt, Joseph P & Zupan, Mark A, 1990. "The Apparent Ideological Behavior of Legislators: Testing for Principal-Agent Slack in Political Institutions," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 103-131, April.
    9. Jared Harris & Philip Bromiley, 2007. "Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation," Organization Science, INFORMS, vol. 18(3), pages 350-367, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xu, Weidong & Luo, Zijun & Li, Donghui, 2024. "Investor–firm interactions and corporate investment efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 84(C).
    2. 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).
    3. Sardar Ahmad & Saeed Akbar & Devendra Kodwani & Anwar Halari & Syed Zubair Shah, 2023. "Compliance or non‐compliance during financial crisis: Does it matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2348-2366, July.
    4. Reddy, Krishna & Wellalage, Nirosha Hewa, 2023. "Effects of family ownership and family management on the performance of entrepreneurial firms," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Su-In Kim & Yujin Kim, 2023. "Analysis of the relationship between investment inefficiency and climate risk and the moderating effects of managerial ownership," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(9), pages 9337-9358, September.
    6. Dzung Viet Nguyen & Ngan Hoang-Kim Nguyen & Tien Thuy Dinh, 2023. "CEO attributes and firm performance: Evidence from companies listed on Ho Chi Minh Stock Exchange," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2282838-228, October.
    7. Ambrose Egwuonwu & Suman Lodh & Monomita Nandy, 2023. "Stock co‐movement and governance bundles: Does the quality of national governance moderate this relationship?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2530-2548, July.
    8. Fumitoshi Mizutani & Eri Nakamura, 2014. "Managerial incentive, organizational slack, and performance: empirical analysis of Japanese firms’ behavior," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(1), pages 245-284, February.
    9. Zhu, JianJun (John) & Tse, Caleb H. & Li, Xu, 2019. "Unfolding China’s state-owned corporate empires and mitigating agency hazards: Effects of foreign investments and innovativeness," Journal of World Business, Elsevier, vol. 54(3), pages 191-212.
    10. Imuetinyan EGUAVOEN & Isaac UKARIN & Ojuye Thomas ENEWEROME, 2023. "Board Attributes and Tax Planning of Corporate Organisations in Nigeria," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 8(1), pages 46-57, February.
    11. Canarella, Giorgio & Miller, Stephen M., 2022. "Firm size, corporate debt, R&D activity, and agency costs: Exploring dynamic and non-linear effects," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    12. Lin-Hua Lu & Poh-Kam Wong, 2019. "Performance feedback, financial slack and the innovation behavior of firms," Asia Pacific Journal of Management, Springer, vol. 36(4), pages 1079-1109, December.
    13. Cheng, Lulu & Xie, En & Fang, Junyi & Mei, Nan, 2022. "Performance feedback and firms’ relative strategic emphasis: The moderating effects of board independence and media coverage," Journal of Business Research, Elsevier, vol. 139(C), pages 218-231.
    14. Mazlina Mustapha & Ayoib Che Ahmad, 2011. "Agency theory and managerial ownership: evidence from Malaysia," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(5), pages 419-436, May.
    15. Elizabeth N. K. Lim, 2015. "The role of reference point in CEO restricted stock and its impact on R&D intensity in high-technology firms," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 872-889, June.
    16. Hafiz Mustansar Javaid & Snober Javid, 2017. "Determining Agency Theory Framework through Financial Leverage & Insider Ownership," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 21-28, March.
    17. Imad Rahim & Attaullah Shah, 2019. "Corporate Financing and Firm Efficiency: A Data Envelopment Analysis Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 58(1), pages 1-25.
    18. Baarda, James R., 2003. "Current Law & Economics Debates: Tools for Assessing Fundamental Cooperative Changes?," 2003 Annual Meeting, October 29 31802, NCERA-194 Research on Cooperatives.
    19. Preet Singh & Chitra Singla, 2016. "Executive Stock Options: Will it Work as a Good Governance Mechanism in all Scenarios?," Working Papers id:10985, eSocialSciences.
    20. Itai Ater & Oren Rigbi, 2015. "Price control and advertising in franchising chains," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 148-158, January.

    More about this item

    Keywords

    principal-agent contract; corporate governance; agency costs; agency theory; breach of contract;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iaf:journl:y:2023:i:3:p:65-69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Serhiy Ostapchuk (email available below). General contact details of provider: https://edirc.repec.org/data/iafkvua.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.