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Korean Governance and Excess Compensation

Sat, April 21, 11:15am to 12:30pm, Hyatt Regency Greenville, TBA

Abstract

Purpose – This study examines the influence of Korean governance structures on CEOs’ excess compensation, defined as observed cash compensation less expected cash compensation derived from standard economic determinants.

Design/methodology/approach – Using regression analysis, two models are tested using 6,823 observations obtained over a 10-year period.

Findings – Governance structures differentially affect excess compensation depending on the purpose of the excess compensation. Owner-managers, foreign shareholders, and chaebols consider excess compensation as a performance motivator; while financial institutions consider excess compensation an agency cost. Additional tests suggest that excess cash compensation is positively associated with a firm’s financial performance.

Social implications – Excess compensation of CEOs does not by itself present a significant problem. However, a serious business ethical violation occurs if excess compensation is related to a large extraction of rent to the detriment of the firm’s shareholders.

Originality/value – Prior studies focused on regular compensation contracts. Little empirical evidence exists about the influence of governance structures on excess cash compensation. This study focuses on excess compensation rather than overall compensation and fills a void by providing evidence of governance structures effect on excess compensation.

Authors