Chief executive officer (CEO) remuneration has received recent public and academic scrutiny with most of the controversy focused on rising CEO remuneration levels and the absence of a strong relation between executive remuneration and firm performance. This study examines the relations between various measures of CEO remuneration ('total', 'fixed salary', 'bonus', and 'options') and firm performance and the firm's governance environment. The analysis is based on a pooled sample of 336 firm-years (48 firms) from the period 1998-2004.
As predicted, the findings suggest a significant positive relationship between the total, salary and bonus components of remuneration and return on assets (ROA), and a significant negative relation with the governance measure. However, the study does not find a relation between the 'option' component and any of the variables of interest. One possible explanation for the failure of the pooled option component model is that disclosure, as it relates to the option grants, was inadequate to assess the relation prior to 2004. The regression results over time provide strong support for the strengthening of the pay-for-performance relationship over the study period.