An empirical examination of the role of the remuneration committee in the relationship between board of directors and remuneration

Syaiful Baharee Jaafar, Mohd Mohid Rahmat, Kieran James

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

There is a serious agency problem when a board of directors' remuneration is not linked with performance. Therefore, a remuneration committee's role is to ensure the remuneration follows proper policies and procedures. This study examines the relationship between the board of directors and remuneration as moderated by the remuneration committee. Its sample size is 386 firms listed in Bursa Malaysia studied from 2007 to 2009. Findings from this study indicate a significant positive relationship between remuneration committees and remuneration, which suggests the effectiveness of the committees. Furthermore, evidence from this study shows that the board of directors has a significant negative influence on non-executives' remuneration. Our study suggests that the non-executive director has less power in remunerative decisions than the executive director, reducing his or her own remuneration. However, this study cannot find evidence of a relationship between the board of directors and executive remuneration.

Original languageEnglish
Pages (from-to)126-142
Number of pages17
JournalInternational Journal of Monetary Economics and Finance
Volume8
Issue number2
DOIs
Publication statusPublished - 2015

Fingerprint

Board of directors
Remuneration
Non-executive directors
Executive remuneration
Agency problems
Malaysia
Sample size

Keywords

  • Board of director
  • Executive remuneration and non-executive director
  • Remuneration
  • Remuneration committee

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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abstract = "There is a serious agency problem when a board of directors' remuneration is not linked with performance. Therefore, a remuneration committee's role is to ensure the remuneration follows proper policies and procedures. This study examines the relationship between the board of directors and remuneration as moderated by the remuneration committee. Its sample size is 386 firms listed in Bursa Malaysia studied from 2007 to 2009. Findings from this study indicate a significant positive relationship between remuneration committees and remuneration, which suggests the effectiveness of the committees. Furthermore, evidence from this study shows that the board of directors has a significant negative influence on non-executives' remuneration. Our study suggests that the non-executive director has less power in remunerative decisions than the executive director, reducing his or her own remuneration. However, this study cannot find evidence of a relationship between the board of directors and executive remuneration.",
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