Executive Compensation and Financial Performance; Industry Sensitivity Test
Owing to the apparent inconsistencies in empirical findings in executive compensation and financial performance studies and the widening gap in the underpinning theories, this study examined the effect of change in industry-type on compensation-performance study. The study used ex post-facto research design to test its objective using ten year data drawn from banking and construction industries with results obtained from data analysis using both descriptive and inferential statistics. Both correlation and OLS results revealed significantly negative and positive results on banking and construction industries respectively. The study concluded that industry characteristics like product type, existence of tangibles and magnitude of returns which differentiates the industries account for the variation of results. The research recommended investors and providers of funds should factor in the sensitivity of compensation to operating returns in the determination of investing industry. This is because the higher the sensitivity, the lower the agency costs and vice versa. Further research is suggested for wider comparative analysis in unrelated and highly diversified industries for potential theory development.
Keywordsó Executive Compensation, Financial Performance, Industry Sensitivity.