Remuneration Committee Characteristics and Excess CEO Pay: Evidence from Malaysia

https://doi.org/10.56225/ijfeb.v4i1.412

Authors

  • Lau Shu Chui Department of Accounting, Faculty of Business and Economics, Universiti Malaya, 50603 Kuala Lumpur, Malaysia
  • Mohd Haniff Zainuldin Department of Accounting, Faculty of Business and Economics, Universiti Malaya, 50603 Kuala Lumpur, Malaysia
  • Che Ruhana Isa Department of Accounting, Faculty of Business and Economics, Universiti Malaya, 50603 Kuala Lumpur, Malaysia

Keywords:

Remuneration Committee Diversity, Independence, Agency Problems, Excess CEO Pay

Abstract

This study examines the monitoring effectiveness of the remuneration committee within corporate boards. Utilizing a dataset of Malaysian listed firms from 2017 to 2021, the findings reveal that an index combining demographic and expertise characteristics (gender, age, ethnicity, educational background, financial expertise, and multiple directorships) better captures remuneration committee diversity than any individual facet. This diversity is associated with a reduction in the Type I agency problem. In contrast, the findings indicate that most independent remuneration committees are ineffective in reducing excess chief executive officer (CEO) pay, potentially exacerbating Type I agency issues. This study offers valuable practical implications for regulators, particularly the Securities Commission Malaysia, as it continues to advance corporate governance reforms. The study also motivates listed companies to adopt best practices in board composition and oversight.

Downloads

Download data is not yet available.

References

Ahmed, A., Atif, M., & Gyapong, E. (2021). Boardroom gender diversity and CEO pay deviation: Australian evidence. Accounting & Finance, 61(2), 3135–3170. https://doi.org/10.1111/acfi.12696

Arora, A. (2024). Do independent directors enhance better corporate governance in companies in India? Public Administration and Policy, 27(2), 154–166. https://doi.org/10.1108/PAP-05-2023-0057

Baranchuk, N., & Dybvig, P. H. (2009). Consensus in Diverse Corporate Boards. Review of Financial Studies, 22(2), 715–747. https://doi.org/10.1093/rfs/hhn052

Bernile, G., Bhagwat, V., & Yonker, S. (2018). Board diversity, firm risk, and corporate policies. Journal of Financial Economics, 127(3), 588–612. https://doi.org/10.1016/j.jfineco.2017.12.009

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8

Bursa Malaysia. (2019). Bursa Malaysia Listing Requirements. Bursa Malaysia.

Chang, Y., Wu, K.-T., Lin, S.-H., & Lin, C.-J. (2024). Board gender diversity and corporate social responsibility. International Journal of Corporate Social Responsibility, 9(1), 7. https://doi.org/10.1186/s40991-024-00095-x

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. https://doi.org/10.1016/S0304-405X(98)00058-0

Develay, E., Wang, Y., & Giamporcaro, S. (2024). The effect of CEO ‐to‐worker pay disparities on CEO compensation: The mediating role of shareholder say on pay votes. International Journal of Finance & Economics, 29(4), 3933–3950. https://doi.org/10.1002/ijfe.2866

Edmans, A., & Liu, Q. (2011). Inside Debt. Review of Finance, 15(1), 75–102. https://doi.org/10.1093/rof/rfq008

Fama, E. F., & Jensen, M. C. (1983). Separation of Ownership and Control. The Journal of Law and Economics, 26(2), 301–325. https://doi.org/10.1086/467037

Fong, E. A., Misangyi, V. F., & Tosi, H. L. (2010). The effect of CEO pay deviations on CEO withdrawal, firm size, and firm profits. Strategic Management Journal, 31(6), 629–651. https://doi.org/10.1002/smj.827

Frydman, C., & Jenter, D. (2010). CEO Compensation. Annual Review of Financial Economics, 2(1), 75–102. https://doi.org/10.1146/annurev-financial-120209-133958

He, L., & Fang, J. (2016). CEO Overpayment and Dismissal: The Role of Attribution and Attention. Corporate Governance: An International Review, 24(1), 24–41. https://doi.org/10.1111/corg.12129

Hsu, H.-W. (2023). CEO excess compensation: The impact of compensation committee quality and corporate social responsibility. Applied Economics Letters, 30(16), 2141–2148. https://doi.org/10.1080/13504851.2022.2094321

Jong, L., & Ho, P.-L. (2019). Family directors, independent directors, remuneration committee and executive remuneration in Malaysian listed family firms. Asian Review of Accounting, 28(1), 24–47. https://doi.org/10.1108/ARA-04-2019-0099

Li, Y., Clements, M., Padgett, C., & Zhang, X. (2023). Does the age of compensation committee members matter for CEO compensation? Corporate Governance: An International Review, corg.12560. https://doi.org/10.1111/corg.12560

Malaysian Code on Corporate Governance. (2017). Malaysian Code on Corporate Governance (MCCG). Securities Commission Malaysia. https://www.sc.com.my/regulation/corporate-governance

Mani, S. P., Bansal, S., Bhaskar, R., & Kumar, S. (2024). Unravelling the board committee puzzle: A comprehensive review and future research agenda. Qualitative Research in Financial Markets, 16(4), 766–802. https://doi.org/10.1108/QRFM-05-2023-0128

Matolcsy, Z., Tyler, J., & Wells, P. (2012). Is continuous disclosure associated with board independence? Australian Journal of Management, 37(1), 99–124. https://doi.org/10.1177/0312896211428492

MCCG. (2017). Malaysian Code on Corporate Governance (MCCG). Securities Commission Malaysia. https://www.sc.com.my/regulation/corporate-governance

MCCG. (2021). Malaysian Code on Corporate Governance (MCCG). Securities Commission Malaysia. https://www.sc.com.my/regulation/corporate-governance

Mohamed Sultan, S. A., Zainol, Z., & Annuar, H. A. (2024). Relationship of Corporate Governance on Directors’ Remuneration of Listed Small and Medium-Scale Companies In Malaysia. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(4), Pages 922-939. https://doi.org/10.6007/IJARAFMS/v14-i4/23565

Mohd Ghazali, N. A. (2020). Governance and ownership in Malaysia: Their impacts on corporate performance. Asian Journal of Accounting Research, 5(2), 285–298. https://doi.org/10.1108/AJAR-03-2020-0017

Murphy, K. J. (1985). Corporate performance and managerial remuneration. Journal of Accounting and Economics, 7(1–3), 11–42. https://doi.org/10.1016/0165-4101(85)90026-6

Nahar, H. S., & Mohamad, M. (2023). On the 20th governance reform anniversary: Revisiting corporate governance and transparency nexus after two decades of change in Malaysia. Journal of Asia Business Studies, 17(3), 576–597. https://doi.org/10.1108/JABS-11-2021-0467

Nanda, V., Prevost, A., & Upadhyay, A. (2022). Risk Preferences of Gender‐Diverse Boards: Evidence from CEO Debt‐like Compensation. British Journal of Management, 1467-8551.12696. https://doi.org/10.1111/1467-8551.12696

Ntim, C. G., Lindop, S., Thomas, D. A., Abdou, H., & Opong, K. K. (2019). Executive pay and performance: The moderating effect of CEO power and governance structure. The International Journal of Human Resource Management, 30(6), 921–963. https://doi.org/10.1080/09585192.2017.1282532

Pascual-Fuster, B., & Crespí-Cladera, R. (2022). Optimal board independence with gray independent directors. BRQ Business Research Quarterly, 25(2), 193–209. https://doi.org/10.1177/2340944420940313

Sánchez‐Marín, G., Lucas‐Pérez, M. E., Baixauli‐Soler, S., Main, B. G. M., & Mínguez‐Vera, A. (2022). Excess executive compensation and corporate governance in the United Kingdom and Spain: A comparative analysis. Managerial and Decision Economics, 43(7), 2817–2837. https://doi.org/10.1002/mde.3564

Sarhan, A. A., Ntim, C. G., & Al‐Najjar, B. (2019). Board diversity, corporate governance, corporate performance, and executive pay. International Journal of Finance & Economics, 24(2), 761–786. https://doi.org/10.1002/ijfe.1690

Sundaram, R. K., & Yermack, D. L. (2007). Pay Me Later: Inside Debt and Its Role in Managerial Compensation. The Journal of Finance, 62(4), 1551–1588. https://doi.org/10.1111/j.1540-6261.2007.01251.x

Tosi, H. L., Werner, S., Katz, J. P., & Gomez-Mejia, L. R. (2000). How Much Does Performance Matter? A Meta-Analysis of CEO Pay Studies. Journal of Management, 26(2), 301–339. https://doi.org/10.1177/014920630002600207

UK Corporate Governance Code. (2018). The Combined Code on Corporate Governance. Financial Reporting Council. https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code/history-of-the-uk-corporate-governance-code

Zaman, R., Asiaei, K., Nadeem, M., Malik, I., & Arif, M. (2024). Board demographic, structural diversity, and eco‐innovation: International evidence. Corporate Governance: An International Review, 32(3), 374–390. https://doi.org/10.1111/corg.12545

Downloads

Published

2025-03-31

How to Cite

Lau, S. C., Zainuldin, M. H., & Isa, C. R. (2025). Remuneration Committee Characteristics and Excess CEO Pay: Evidence from Malaysia. International Journal of Finance, Economics and Business, 4(1), 13–22. https://doi.org/10.56225/ijfeb.v4i1.412

Issue

Vol. 4 No. 1 (2025): March 2025

Section

Articles

License

Copyright (c) 2025 Authors

Creative Commons License

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

Similar Articles

1 2 > >> 

You may also start an advanced similarity search for this article.