Economic Determinants of Group versus Individual Compensation Schemes for Senior Executives

63 Pages Posted: 17 Apr 2007 Last revised: 22 Jul 2008

See all articles by Paul James Brown

Paul James Brown

UTS Business School

Zoltan P. Matolcsy

University of Technology Sydney (UTS) - School of Accounting

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ; Financial Research Network (FIRN)

Date Written: July 18, 2008

Abstract

This paper investigates firm characteristics associated with the choice of individual versus group compensation schemes for senior executives below the CEO level. We define individual compensation schemes where senior executives are compensated independently from other senior executives, where incentive compensation is linked to individual performance. In contrast, group compensation schemes are defined where senior executive compensation is jointly determined with other senior executives, with compensation linked to common incentives. This paper is motivated by limited evidence on compensation schemes for senior executives' beyond the CEO, limiting critical evaluation of senior executives' compensation. Evidence using Australian data provides support that individual compensation schemes are adopted by firms where individual senior executive inputs (effort) and outputs are separable and observable. We also find support that group compensation schemes are adopted where there are efficiencies from senior executive co-operation and interdependencies between executives, such as in integrated firms. The findings contribute to the ongoing debate surrounding the determination of appropriate corporate governance mechanisms in the presence of agency conflicts, and especially executive compensation schemes.

Keywords: Corporate Governance, Senior Executive Compensation and incentives, Agency Theory, Group and Individual Compensation

JEL Classification: G30, G34, J33, J41, M41

Suggested Citation

Brown, Paul James and Matolcsy, Zoltan Paul and Wells, Peter Alfred, Economic Determinants of Group versus Individual Compensation Schemes for Senior Executives (July 18, 2008). Available at SSRN: https://ssrn.com/abstract=980863 or http://dx.doi.org/10.2139/ssrn.980863

Paul James Brown (Contact Author)

UTS Business School ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 2 9514 3436 (Phone)
+61 2 9514 3669 (Fax)

HOME PAGE: http://https://www.uts.edu.au/staff/paul.j.brown

Zoltan Paul Matolcsy

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
202
Abstract Views
1,754
rank
183,155
PlumX Metrics