CEO Pay Cuts, Corporate Governance and Family Business

Huang, L. J., and Lin, Y. F. 2020. CEO Pay Cuts, Corporate Governance and Family Business. NTU Management Review, 30 (1): 65-102. doi:10.6226/NTUMR.202004_30(1).0003

Li-Jin Huang, Department of Accounting and Taxation, Shih Chien University Kaohsiung Campus
Ying-Fen Lin, Department of Accounting, National Dong Hwa University

Abstract

CEO compensation has been the focus of agency problems for a long time. This study differs from previous research studies by investigating the relationship between performance and compensation from the perspective of executive compensation, and the benefits of internal and external control mechanisms of companies (the proportion of independent directors and shareholding ratio of institutional investors). The identity of the CEO in a family businesses is made distinct (i.e., professional manager or family member) to examine the responses to pay cuts in difference types of CEOs. In line with the provisions for compensation disclosures in Taiwan, the study was conducted between 1999 and 2004. The results indicate that businesses which underperform in the previous year leads to pay cuts for the CEO, this is more likely to occur when there is a higher proportion of independent directors on the board of directirs. A higher shareholding ratio of institutional investors yield similar results. Nevertheless, CEOs who are family members of family business are less likely to undergo pay cuts compared to professional
CEOs. In general, CEO performances are found to rebound following their pay cuts, with
professional CEOs having greater improvements.
 


Keywords

CEO pay cutscorporate governancefamily business


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