| dc.description.abstract | The purpose of the study is to discuss the effects of top management compensation on firm performance based on the agency theory and the tournament theory. The biggest difference from other researches in the past is to consider variables such as risk, CEO duality and the R&D expense ratio of the electronics industry, and analyze the impact of increasing the pay gaps and the average compensation of top managers on firm performance. The variable data of top management compensation and firm performance are collected from Taiwan Economic Journal (TEJ) and Market Observation Post System during 2010 to 2017, which is based on the secondary data of listed companies in Taiwan.
Results indicate that the top management compensation level, motivation compensation ratio, and the wage differential between top managers and other employees have a significantly positive effect on firm performance. However, the empirical evidence shows that the higher ratio of top manager’s compensation to profit after tax results the significantly negative effect on firm performance(return on assets (ROA) and employee productivity), which will significantly reduce the firm′s operating performance and impact the firm′s future growth value. The implementation of expensing employee bonus policy in 2008 ,can really reduce the level of top manager’s bonus because of decreasing stock bonus significantly in many firms .The evidence shows that it cause the ratio of top manager’s bonus to the total sharing profits with employees has no significant effect on firm performance.
Furthermore, the results indicate that the companies with higher systemic risk (Beta) and the increasing pay gaps between top managers and other employees can have a positive correlation with firm performance on return on assets (ROA) and Tobin′s Q, especially have significant effect on Tobin′s Q. The empirical analysis of this variable for listed companies in the electronics industry has a significantly positive effect on the return on assets (ROA).
The evidence shows that the companies with higher R&D expense ratio which enhance the average compensation level of top managers can have a positive effect on firm performance(return on assets (ROA)and Tobin′s Q),especially have significant effect on ROA. But, the results show that the above two variables have no significant effect on employee productivity.
In addition, the research add the variable of CEO duality to discuss that the effects of increasing top manager’s average compensation on firm performance. The evidence shows that the effect on firm performance is not significant ,which has a positive correlation with employee productivity and return on assets (ROA) ,but minor negative impact on Tobin′s Q. The empirical analysis of this variable for listed companies in the electronics industry has a significantly positive effect on the employee productivity.
The research also discuss that the impact of R&D expenditure ratios of electronic industry on firm performance. Empirical evidence shows that the impact on firm performance is not significant. However, if the companies enhance the top manager’s average compensation, it will have a positive effect on firm performance(return on assets (ROA)and Tobin′s Q ), especially have significant effect on Tobin’s Q , which can enhance the company′s growth value. But, the result shows that the variable has no significant effect on employee productivity.
According to the agency theory and the tournament theory, they provided criterions for how to decide wage structures which can increase firm performance. An appropriate wage structure not only can retain the top management team but also can motivate firm’s key talents to promote their performance hard in the sequential tournaments. This study expects that it can provide a reference for improving the firm performance through adjusting the management compensation structure when companies consider the corporate governance and future competitiveness.
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