Corporate Governance and Board Compensation: A Case of listed Non-Financial Firms in Pakistan

Zahid Ali, Shuaib Ali, Adnan Khan


The study addresses the impact of corporate governance (CG) on board compensation for the listed non-financial firms on Pakistan Stock Exchange (PSX) for the period 2005-2015. We incorporated female directors, board size, ownership concentration, board independence, and adoption of CCG (code of corporate governance) as channels of CG. Board compensation was measured by the natural log of the total baord compensation. The study has controlled for firm size, firm performance, leverage, and cash flow from operation. By using ordinary least square (OLS) regression analysis technique together with robust standard error, we find significant relationship between CG characteristics and board compensation.

Findings suggest that CG characteristics and ownership structure plays a significant role in the board compensation determination. Board size and board independence exhibits significant positive relationship with board compensation. Additionally, consistent with literature, we find negative relationship between gender diversity and board compensation. Ownership concentration shows positive relationship with board compensation. Implementation of code of CG exhibits positive and significant relationship with board compensation. Finally we find positive relationship between CG index developed via Principal Component Analysis (PCA) and board compensation.

Key Words: Corporate Governance; Board Compensation; Ownership Concentration; Gender Diversity; Corporate Governance Index

Full Text:



Al-Najjar, B. (2014). Corporate governance, tourism growth and firm performance: Evidence from publicly listed tourism firms in five Middle Eastern countries. Tourism Management, 42, 342-351.

Andreas, J. M., Rapp, M. S., & Wolff, M. (2012). Determinants of director compensation in two-tier systems: evidence from German panel data. Review of managerial science, 6(1), 33-79.

Basu, S., Hwang, L.-S., Mitsudome, T., & Weintrop, J. (2007). Corporate governance, top executive compensation and firm performance in Japan. Pacific-Basin Finance Journal, 15(1), 56-79.

Byrd, J., Cooperman, E. S., & Wolfe, G. A. (2010). Director tenure and the compensation of bank CEOs. Managerial Finance.

Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance (Vol. 1): Gee.

Chakrabarti, R., Megginson, W., & Yadav, P. K. (2008). Corporate governance in India. Journal of Applied Corporate Finance, 20(1), 59-72.

Cheng, S., & Firth, M. (2005). Ownership, corporate governance and top management pay in Hong Kong. Corporate Governance: An International Review, 13(2), 291-302.

Cheng, S., & Firth, M. (2006). Family ownership, corporate governance, and top executive compensation. Managerial and Decision Economics, 27(7), 549-561.

Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of financial economics, 58(1-2), 81-112.

Clarkson, P. M., Walker, J., & Nicholls, S. (2011). Disclosure, shareholder oversight and the pay–performance link. Journal of Contemporary Accounting & Economics, 7(2), 47-64.

Cole, R. A., & Mehran, H. (2008). Staff Reports.

Colvin, J. S., Green, R. P., Schmahl, J., Capel, B., & Ornitz, D. M. (2001). Male-to-female sex reversal in mice lacking fibroblast growth factor 9. Cell, 104(6), 875-889.

Conyon, M. J., & He, L. (2004). Compensation committees and CEO compensation incentives in US entrepreneurial firms. Journal of Management Accounting Research, 16(1), 35-56.

Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of financial economics, 51(3), 371-406.

Darmadi, S. (2011). Board diversity and firm performance: The Indonesian evidence. Corporate ownership and control Journal, 8.

Dyl, E. A. (1988). Corporate control and management compensation: Evidence on the agency problem. Managerial and Decision Economics, 9(1), 21-25.

Fich, E. M., & Shivdasani, A. (2005). The impact of stock‐option compensation for outside directors on firm value. The Journal of Business, 78(6), 2229-2254.

Firth, M., Fung, P. M., & Rui, O. M. (2007). How ownership and corporate governance influence chief executive pay in China's listed firms. Journal of Business Research, 60(7), 776-785.

Ghosh, A. (2006). Determination of executive compensation in an emerging economy. Evidence from India. Emerging Markets Finance and Trade, 42(3), 66-90.

Hall, B. J., & Murphy, K. J. (2002). Stock options for undiversified executives. Journal of Accounting and Economics, 33(1), 3-42.

Hambrick, D. C., & Finkelstein, S. (1995). The effects of ownership structure on conditions at the top: The case of CEO pay raises. Strategic Management Journal, 16(3), 175-193.

Hanlon, M., Rajgopal, S., & Shevlin, T. (2003). Are executive stock options associated with future earnings? Journal of Accounting and Economics, 36(1-3), 3-43.

Jaiswall, M., & Firth, M. (2009). CEO pay, firm performance, and corporate governance in India's listed firms. International Journal of Corporate Governance, 1(3), 227-240.

Kaplan, S. N. (2008). Are US CEOs Overpaid? Academy of Management Perspectives, 22(2), 5-20.

Kaplan, S. N., & Minton, B. A. (1994). Appointments of outsiders to Japanese boards: Determinants and implications for managers. Journal of financial economics, 36(2), 225-258.

Lewellen, W. G., & Huntsman, B. (1970). Managerial pay and corporate performance. The American Economic Review, 60(4), 710-720.

Lie, E. (2005). On the timing of CEO stock option awards. Management Science, 51(5), 802-812.

Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of financial economics, 38(2), 163-184.

Narayanan, M., & Seyhun, H. N. (2005). Effect of Sarbanes-Oxley Act on the influencing of executive compensation. Effect of Sarbanes-Oxley Act on the Influencing of Executive Compensation (November 2005).

Parthasarathy, A., Menon, K., & Bhattacherjee, D. (2006). Executive compensation, firm performance and governance: an empirical analysis. Economic and Political weekly, 4139-4147.

Sanders, W. G., & Carpenter, M. A. (1998). Internationalization and firm governance: The roles of CEO compensation, top team composition, and board structure. Academy of Management journal, 41(2), 158-178.

Shivdasani, A. (1993). Board composition, ownership structure, and hostile takeovers. Journal of Accounting and Economics, 16(1-3), 167-198.

Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of political economy, 94(3, Part 1), 461-488.

Smith, J. W., Weinstein, R., & For The AABB Hemapheresis Committee, K. L. H. (2003). Therapeutic apheresis: a summary of current indication categories endorsed by the AABB and the American Society for Apheresis. Transfusion, 43(6), 820-822.

Soares, R. (2010). 2010 catalyst census: Fortune 500 women board directors: Catalyst New York.

Tomar, A., & Korla, S. (2011). Global recession and determinants of CEO compensation: An empirical investigation of listed Indian firms. Indore Management Journal, 3(2), 11-26.

Wahab, E. A. A., & Rahman, R. A. (2009). Institutional investors and director remuneration: do political connections matter. Corporate Governance and Firm Performance, 139-169.

Walsh, J. P. (2008). CEO compensation and the responsibilities of the business scholar to society. Academy of Management Perspectives, 22(2), 26-33.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
Sarhad Journal of Management Sciences by Sarhad University of Science & Information Technology is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at