A study of executives' remuneration in Hong Kong

Abstract

This study attempts to model director and executive pay in Hong Kong by using data on 374 local quoted companies covering five years (1994 - 1998). Management remuneration is a function of various determinants. The relationship between the compensation and its determinants is explored in this study. In addition to the inclusion of commonly used factors, proxies for family control and economic context are also inputted into the regressions. In order to net out the industry-wide and time effects, panel data analysis is used in the process. Consistent with studies overseas, size is the principal explanator of remuneration. The measurement for corporate performance shows that the relationship between pay and performance is minimal. This is in accordance with most findings from foreign studies. Evidence indicates the external assets claimers have an impact on senior managers' pay. Substantial shareholders who hold 10% or more of the company monitor the level of pay that is received by the top management. The duality of shareholder and director has an impact on directors' pay. On the whole, the results show that equity structure has an influence on executives' emoluments. Higher percentage of board share ownership and higher proportion of large investors' shareholdings moderate the pay for directors and executive officers. As per prediction, directors in family controlled companies accept comparatively less from individual companies. Surprisingly, the existence of non-executives directors increases the top management compensation. Echoing the public criticism that existing executive pay schemes are unfair to the shareholders, my results indicate that there is no relationship between the external economic environment and the income of the management. Directors are continuing to increase the rewards for executives and themselves during periods of economic recession. Stock options have become an important component of executive incentive schemes. Unfortunately, a detailed study of executive option schemes cannot be carried out in this study because of a lack of publicly available data. Only the existence of executive option schemes is included in the models to assess its impact on directors' and executives' compensation. The findings are positive and strong. The results indicate that options are not substitutes for CEO pay and they actually increase the fortune of the senior management.