Executive's compensation, good corporate governance, ownership structure, and firm performance: A study of listed banks in Indonesia

Abstract

This study aims to examine the relationship between executive's compensation and firm performance in the banking industry in Indonesia. This study also determines the impact of remuneration and nomination committee (RNC) on executive's compensation (EC) and firm performance. The samples are listed bank in Indonesia during 2006 - 2015. The regression uses two stage least square (2SLS) with unbalanced panel data. The findings reveal that performance on pay and pay on performance are valid in Indonesia. However, the performance is only for accounting-based performance but not for market value-based performance. Furthermore, in examining the role of remuneration and nomination committee (RNC), the findings reveal that the RNC has a negative relationship to the executives' compensation (ES). It seems the role of the RNC is preventing the overpaid of the EC. Finally, regarding the ownership structure, The state banks have the similar behavior with the main findings in this research. However, only in the state bank, the RNC has a real impact on both accounting-based performance and market value-based performance. While ownership concentration (BO) variable which is used as dependent variables in this study reveals the possibility of the agency problems or inactive block holders condition that make ineffective monitoring role of the corporation since the findings show that the more BO, the more EC, and the worse firms performance.