The correlation between CEO remuneration and company performance : a Singapore-Hong Kong comparison.

Abstract

This paper recognizes the quintessential role that Chief Executive Officer (CEO) remuneration historically plays in aligning the interests of the CEOs with those of the stockholders by virtue of motivating them to improve company performance. On the other hand, such pay-for-performance schemes have been increasingly facing criticism for its seemingly growing ineffectiveness. This paper strives to gain a greater understanding of how the application of these remuneration schemes has been affected, if at all, in face of such controversy. Based on a sample of 143 Singapore and Hong Kong companies in the financial year ended 2012, we examined and compared the correlation between CEO remuneration and company performance for the two countries/regions.

Our findings indicate that Hong Kong companies generally demonstrate a moderately strong pay-performance correlation while Singapore companies demonstrate a weak, at best, pay-performance correlation. In addition, the average Hong Kong CEO is more likely to be paid higher than his or her Singaporean counterpart of a company with similar levels of corporate performance. As a whole, our results suggest that pay-for-performance schemes are still relevant in Hong Kong but not for Singapore. Given that Hong Kong companies are found to be generally more profitable than Singapore companies, our findings may compel Singapore companies to reevaluate their current remuneration frameworks.