The Pay for Performance Dilemma

Empirical evidence from the United States indicates a statistically significant relationship - but not a particularly strong economic relationship - between the CEO's remuneration and corporate performance. In Australia, the limited number of studies in this field have found that CEO pay is related to company size (the larger the company, on average the higher the pay) but is not linked in any clear way to corporate performance. This article analyses the factors which may explain the lack of a strong link between executive pay and company performance in Australia. Some of these are consistent with the board- capture theory articulated by Bebchuk and Fried.