| dc.description.abstract | The purpose of this study is to discuss the interaction between board control, managerial pay, and firm performance. By using five board control variables, including (1)CEO duality; (2)The ratio of inside directors; (3)The ratio of board stock ownership; (4)The institutional ownership; (5)The level of director compensation, we would like to understand the different extent of interaction between board control, managerial pay and firm performance. By doing so, we would like to provide information for firms about how to construct the managerial pay in order to maximize board, top managers, and firms’ benefit. The hypothesis in this study was tested by using a sample of 628 Taiwanese Listed Companies in 2009 to 2010. Linear Structure Relation (LISREL) was used as an analysis method in this research. We hope that the results in this study can provide a different view on the determinants of managerial pay, and can benefit firms’future related decision.
The results indicate that: In All 628 Taiwanese Listed Companies, the board control not only can directly influence managerial pay, but also indirectly influence firm performance through managerial pay. However, the positive relationship between board control and firm performance does not indirectly influence managerial pay. For large-scale companies, board control can have direct influence on managerial pay, and then it can directly influence firm performance. This influence of board control exercised directly on managerial pay is more effective than its indirect influence on managerial pay through the direct influence it has on firm performance. And for small-scale company, although the board control cannot directly and effectively effect managerial pay, it can have indirect influence on managerial pay through the direct influence it has on firm performance.
According to our results, we suggest that board control is not the only effective way to control managerial pay, and confirm that the managerial pay serve as a key role in corporate governance. Therefore, companies must design suitable compensation incentive systems for top managers, in order to motivate them to do their best for the company. And also, the board needs to carefully monitor managerial compensation, in order to push them to and make decisions really aligned with corporate interest. Furthermore, the board may need to assess the proper compensation level for top managers according to firm performance.
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