How Effective is the Corporate Governance on Managerial Compensations : From the Perspective of Covid-19 Period

다국어 초록 (Multilingual Abstract)

Using an extensive sample of exchange traded firms from 2011 to 2021 which includes the Covid-19 period, we decompose changing managerial compensation policies based on the decomposition method (Jann, 2008). Covid-19 aggravates firm characteristics of poor governance firms more severely. Their profitability and accumulated earnings are severely drained and risk and cash flow volatility increase sharply. Despite these deteriorating firm characteristics, poor governance firms have maintained previous pay levels, suggesting a possible overpayment issue. Conversely, well governed firms are more responsive to macroeconomic conditions and adjust managerial pays accordingly. As a results, 93.7% of variation in managerial pays can be explained by the change in firm characteristics. Firm characteristics that affect managerial pays are closely interrelated and make the partitioning of variances among interrelated multiple predictors difficult. We orthogonalize each predictor based on the relative weight analysis (Tonidandel and LeBrton, 2015). It suggests that the relative weight on accounting performance measure, ROA is much greater for the high governance firms and they also manifest higher pay sensitivities. Despite the prevalent pay discrimination against small firms, well governed firms seem to more actively adopt the incentive pay systems and they implement more strict pay policies by reducing about 20% of managerial pays during the Covid-19 period. Indeed, the less severe information asymmetry under good governance nurtures a natural environment where managerial efforts can be clearly verifiable and companies can reward managers based on their performance. The implication is that governance structure can offer an opportunity of natural separating equilibrium.