Top Executive Compensation: Implications and Recommendations for Reform

Abstract

This article outlines the implications and recommendations that arise from the findings from a previous empirical research undertaken by the author. In general, the findings suggest that company performance is not a major determinant of top executive compensation. Rather, subjective measures and company size are likely to be the more important determinants of top executive compensation. The findings also suggest that under the condition of ownership concentration, the major role of the board of directors may not be monitoring top executives and setting their compensation. Instead, the major role of the board of directors may be to provide external links, expertise and advice to the company. The findings of the study further suggest that under the condition of ownership concentration, chief executives who hold the chair or vice-chair of the board are unlikely to use their power to benefit themselves. The findings suggest that the assumptions and predictions of agency theory should not be generalised to non–Anglo-American settings such as Hong Kong, and are unlikely to offer an explanation of top executive compensation—at least for the major listed companies in Hong Kong. Other theories such as stewardship theory may offer a better explanation of top executive compensation, especially in a business environment such as Hong Kong. The findings indicate that it may be wise for company shareholders and regulatory policy-makers in Hong Kong to consider Hong Kong’s unique institutional and cultural contexts as they reform compensation policies for Hong Kong’s top executives.