CEO compensation and firm performance in Japan: Evidence from new panel data on individual CEO pay |
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| Institution: | 1. John T. Steed School of Accounting, Price College of Business Administration, University of Oklahoma, United States;2. Culverhouse School of Accountancy, Culverhouse College of Commerce and Business Administration, University of Alabama, United States;1. Edwin L. Cox School of Business, Southern Methodist University, Dallas, TX 75275-0333, United States;2. Neeley School of Business, Texas Christian University, Fort Worth, TX 76109, United States;1. E. J. Ourso College of Business, Louisiana State University, United States;2. Wharton Financial Institutions Center, United States;3. School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong;1. Kent Business School, The University of Kent, Canterbury, Kent CT2 7PE, UK\n;2. Department of Economics, University of Thessaly, Korai 43, 38333 Volos, Greece\n |
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| Abstract: | Prior studies on Japanese executive compensation have been constrained by the lack of longitudinal data on individual CEO pay. Using unique 10-year panel data on individual CEO's salary and bonus of Japanese firms from 1986 to 1995, we present the first estimates on pay-performance relations for Japanese CEO compensation. Specifically we find consistently that Japanese CEO's cash compensation is sensitive to firm performance (especially accounting measures), and that the “semi-elasticity” of CEO's cash compensation with respect to ROA is 1.3 to 1.4, which is in general agreement with prior estimates elsewhere. As such, our estimates do not support that Japanese corporate governance is unusually defunct with regard to the significance and size of the sensitivity of CEO compensation to accounting profitability. On the other hand, to be consistent with the literature on Japanese corporate governance that tends to downplay the role of shareholders and stress the role of banks and employees, we find that stock market performance tends to play a less important role in the determination of Japanese CEO compensation. Finally, we find that the bonus system makes CEO compensation more responsive to firm performance in Japan. The finding is in contrast to the literature on compensation for regular employees in Japan which often argues that bonus is a disguised base wage. J. Japanese Int. Economies 20 (1) (2006) 1–19. |
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