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CEO pay ratio versus financial performance in Polish public companies

Author

Listed:
  • Byrka-Kita Katarzyna

    (Faculty of Economics, Finance and Management, University of Szczecin, ul. Mickiewicza 64, 71-101 Szczecin, Poland)

  • Bulasiński Karol

    (Doctoral School, University of Szczecin, ul. Mickiewicza 64, 71-101 Szczecin, Poland)

Abstract

In this paper, we aim to investigate the relationship between CEO pay ratio and corporate financial performance in Polish public companies. Using a sample of 259 companies listed on the Warsaw Stock Exchange, we demonstrate that links between the pay gap and accounting measures of performance differ from market ones. Our findings indicate a negative correlation between CEO pay ratio and return on sales. This implies that companies pay executives less during periods of high profitability, possibly to avoid the negative impact of excessive pay on firm performance. We also discover that the pay gap, measured by CEO pay ratio, is positively linked with Tobin’s Q and annual stock returns. A high CEO pay ratio signals strong incentives for top executives to perform, potentially leading to better strategic decisions and, consequently, higher Tobin’s Q ratios and annual stock returns.

Suggested Citation

  • Byrka-Kita Katarzyna & Bulasiński Karol, 2024. "CEO pay ratio versus financial performance in Polish public companies," Economics and Business Review, Sciendo, vol. 10(3), pages 197-215.
    • Handle: RePEc:vrs:ecobur:v:10:y:2024:i:3:p:197-215:n:1005
    DOI: 10.18559/ebr.2024.3.1480
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    References listed on IDEAS

    as
    1. H. Leon Chan & Brett Kawada & Taekjin Shin & Jeff Wang, 2020. "CEO-employee pay gap and firm R&D efficiency," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(2), pages 271-287, April.
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    3. H. Leon Chan & Brett Kawada & Taekjin Shin & Jeff Wang, 2020. "CEO-employee pay gap and firm R&D efficiency," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(2), pages 271-287, April.
    4. D'Mello, Ranjan & Kwon, Sungjoung & Toscano, Francesca, 2024. "Corporate social responsibility and the executive-employee pay disparity," Journal of Banking & Finance, Elsevier, vol. 162(C).
    5. Bao, May Xiaoyan & Cheng, Xiaoyan & Smith, David, 2020. "A path analysis investigation of the relationships between CEO pay ratios and firm performance mediated by employee satisfaction," Advances in accounting, Elsevier, vol. 48(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    executive compensation; pay disparities; corporate governance; financial performance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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