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Ceo compensation and firm performance in japan: evidence from new panel data on individual ceo pay*

Takao Kato, +2 more
- 01 Mar 2006 - 
- Vol. 20, Iss: 1, pp 1-19
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TLDR
In this paper, the authors present the first estimates on the performance sensitivity of Japanese CEO compensation and find that Japanese CEO’s cash compensation is sensitive to firm performance (especially accounting measures), and that the sensitivity of CEO compensation to ROA is 1.3 to 1.4.
Abstract: 
Prior studies on Japanese executive compensation have been constrained by the lack of longitudinal data on individual CEO pay. Using unique 10-year panel data on individual CEO’s salary and bonus of Japanese firms from 1986 to 1995, we present the first estimates on the performance sensitivity of Japanese CEO compensation. Specifically we find consistently that Japanese CEO’s cash compensation is sensitive to firm performance (especially accounting measures), and that the sensitivity of CEO’s cash compensation to ROA is 1.3 to 1.4, which is in general agreement with prior estimates elsewhere. As such, our estimates do not support that Japanese corporate governance is unusually defunct with regard to the significance and size of the sensitivity of CEO compensation to accounting profitability. On the other hand, to be consistent with the literature on Japanese corporate governance that tends to downplay the role of shareholders and stress the role of banks and employees, we find that stock market performance tends to play a less important role in the determination of Japanese CEO compensation. Finally, we find that the bonus system makes CEO compensation more sensitive to firm performance in Japan. The finding is in contrast to the literature on compensation for regular employees in Japan which often argues that bonus is a disguised base wage.

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Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges

Takao Kato, +1 more
- 01 Jul 2006 - 
TL;DR: Li et al. as mentioned in this paper found statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholders' value in China.
Journal ArticleDOI

The Impact of Corporate Governance on Corporate Performance: Evidence from Japan

Rob Bauer, +4 more
- 01 Jun 2008 - 
TL;DR: In this paper, a unique data set provided by Governance Metrics International, which rates firms using six different corporate governance dimensions, was used to analyze whether Japanese firms with many governance provisions have a better corporate performance than firms with few governance provisions.
Journal ArticleDOI

Adoptive Expectations: Rising Sons in Japanese Family Firms

Vikas Mehrotra, +4 more
- 28 Feb 2011 - 
TL;DR: In this article, a nearly population-wide panel of postwar listed non-financial firms shows inherited family firms more important in postwar Japan than generally realized, and also performing well, an unusual finding for a developed economy.
Journal ArticleDOI

Is the Pay-Performance Relationship Always Positive?: Evidence from the Netherlands

Piet Duffhues, +1 more
- 01 Feb 2008 - 
TL;DR: A hand-collected data set of compensation paid to executive directors of Dutch listed companies is compiled and a robust empirical analysis fails to detect a positive pay–performance relationship, which questions the conventional wisdom that executive pay helps to align shareholder interests with those of managers.
Journal ArticleDOI

Top executive pay and firm performance in China

Trevor Buck, +2 more
- 17 Apr 2008 - 
TL;DR: Li et al. as mentioned in this paper found that executive pay and firm performance mutually affect each other through both reward and motivation, and proposed a two-way pay-performance causation model to examine whether China's unique institutional environment has produced outcomes consistent with those for Western market economies.
References
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Journal ArticleDOI

Performance Pay and Top Management Incentives

Kevin Murphy, +1 more
- 08 Mar 2001 - 
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Book

Performance pay and top-management incentives

Michael C. Jensen, +1 more
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Book

Executive compensation

D. R. Roberts
Journal ArticleDOI

Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups

Takeo Hoshi, +2 more
- 01 Feb 1991 - 
TL;DR: In this article, the authors present evidence suggesting that information and incentive problems in the capital market affect investment and highlight the role of financial intermediaries in the investment process, and conclude that investment is more sensitive to liquidity for the second set of firms than for the first set.
ReportDOI

Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence

Robert Gibbons, +1 more
- 01 Jun 1992 - 
TL;DR: In this paper, the authors study optimal incentive contracts when workers have career concerns and find empirical support for this prediction in the relation between chief executive compensation and stock market performance, showing that the optimal compensation contract optimizes total incentives: the combination of the implicit incentives from career concern and the explicit incentives from the compensation contract.
Frequently Asked Questions (6)
Q1. What contributions have the authors mentioned in the paper "Ceo compensation and firm performance in japan: evidence from new panel data on individual ceo pay*" ?

Using unique 10-year panel data on individual CEO ’ s salary and bonus of Japanese firms from 1986 to 1995, the authors present the first estimates on the performance sensitivity of Japanese CEO compensation. Specifically the authors find consistently that Japanese CEO ’ s cash compensation is sensitive to firm performance ( especially accounting measures ), and that the sensitivity of CEO ’ s cash compensation to ROA is 1. 3 to 1. 4, which is in general agreement with prior estimates elsewhere. On the other hand, to be consistent with the literature on Japanese corporate governance that tends to downplay the role of shareholders and stress the role of banks and employees, the authors find that stock market performance tends to play a less important role in the determination of Japanese CEO compensation. Finally, the authors find that the bonus system makes CEO compensation more sensitive to firm performance in Japan. 

their estimates show that base salary is less sensitive to firm performance than total compensation including base salary and bonus, confirming that the Japanese bonus paymentsystem makes CEO pay more sensitive to firm performance. 

Since their sample includes a relatively small number of listed firms and data onshareholder return (stock market performance measure) are available only for listed firms, their estimated sensitivity of CEO compensation to shareholder return ought to be interpreted with caution. 

When only ROA (a standard accounting performance measure) is considered, the estimated coefficient on DROA is 1.415 and statistically significant at the 1 percent level. 

When only ROR is considered, the estimated coefficient on ROR is positive and significant at the 1 percent level without the year dummy variables. 

the estimated sensitivity of CEO cash compensation to shareholder return turns out to be less than 0.1 and statistically insignificant (except when the year dummy and all other performance variables are excluded).