The Influence of Chief Executive Officer ’ s 2 Compensation on Firms ’ Performance in the Nigeria 3 Banking Industry 4

This is a quantitative research based on secondary sources of data. The study examines 12 the influence of Chief Executive Officer’s (CEO) compensation on a firm's performance. The 13 objectives of the study were to determine if CEO compensation and firm size do significantly 14 influence a firm’s performance. In other to elicit information to examine the relationship between 15 the variables, the convenience sampling technique, with the combination of both the cross-sectional 16 and time-series data (panel data) were used since they provide greater precision and guard against 17 having an illusory sample. 10 banks quoted on the Nigerian Stock Exchange were sampled for easy 18 accessibility of data. The least square regression technique was used to test the hypotheses of the 19 study. Two hypotheses were tested using panel least square (EViews 8) and from the research 20 work, we summarize the following results; there is a significant relationship between CEO 21 compensation and firm performance in the Nigerian banking industry. In addition, firm size does 22 significantly influence firm performance in the Nigerian banking industry. The study recommends 23 that there should be proper compensation review as this will increase the productivity of the 24 executives. Since increased pay is necessary for the efficiency of the workers, it is advised to ensure 25 a considerable pay as this will ensure for efficiency in the organization. In addition, since the core 26 goal of setting up any business is to make a profit, business organisations should sort out ways at 27 maximising profit and this could include cutting down expenses such as cutting down excessive 28 employees’ pay (CEOs pay especially) and setting apposite pay package for employees. Therefore, 29 policymakers (board of directors) should make an effort to align CEO’s pay with the firm’s 30 capability to pay. 31


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Compensation management is one of the most imperative elements of personnel management,  that one of the most important roles of a board is to take into service a CEO with remarkable skill.

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Finding and taking into service an apt CEO is an important task for the board of a firm. On the other 48 hand, even though the apt CEO is employed, there are a number of concerns which come about. The 49 key concern that comes up is the CEO pay, and whether or not this can influence the performance of 50 a firm. Investors nevertheless expect the CEO who is receiving high pay to perform and prove his

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In this study, firm performance is proxy by return on asset and used as the dependent variable.

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This will be briefly explained next.

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Return on assets is the percentage corporate return on assets or the ratio of earnings to average 129 total assets. The performance of a firm is dependent on several factors (e.g., economy), but return on

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In addition, it reflects the ratio of just how much a firm has earned on its asset base, and also the 136 return on assets. Return on assets will be made use of in this study as a dependent variable for the 137 reason that the net profit in correlation to the selected firms' asset base is a great method of

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Findings from the study suggest that performance does not play any role in CEO compensation.

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The theoretical framework will look into various theories that have been formulated in the field 175 of CEOs compensation management and its impact on firms' performance.  The term stakeholder refers to any group or individual who has a legitimate claim on the firm.

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Each stakeholder of a firm creates value for the company. Since managers are considered to be 184 stakeholders of a firm, the CEO is also included in this consideration. Thus this theory is built on the 185 premise that CEOs are also affected by the outcomes of the firm. That is to say, a positive firm 186 performance will ultimately make the position of the CEO stronger. This will make the probability of 187 a layoff smaller. Thomsen

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The linear multiple regression model is specified below:

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The econometric model is given by:

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From the correlations analysis, CEO compensation has a strong positive relationship between firm 246 size and return on asset. It is also observed that firm size is positively related to return on asset. this is assumed to be captured by the stochastic error term, U. this shows that the model is a good 255 measure of fit determining the explanatory power of the model.

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The adjusted R 2 is given as 0.612432. This means that after adjusting for the degree of freedom, 257 the adjusted R 2 explains approximately 61.2% systematic variation in the dependent variable. The

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higher the adjusted R 2 , the lower the residual variance error due to a one-on-one relationship 259 between the both of them and this means our model has a better predictive ability.

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The F-ratio with the value of 37.73448 shows that the model easily passes the F-test at 5% level 261 of significance and this means that the hypotheses of a significant linear relationship between the 262 dependent and independent variables taken together is validated. It shows that the overall 263 significance of the model is met.

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The T-statistics using the rule of thumb (which states that when the t-value of the parameter 265 estimate is greater than or equal to 2 then it is statistically significant in explaining the dependent

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The t-value can be used to test the hypotheses of the study. The table below summarizes the test   294 and conclude whether they are significant or not;

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Also, the measure of financial performance appears to also account for the diversity in the findings.

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Nevertheless, since the focal objective of setting up any business is to make a profit, business 331 organizations usually sort out ways at maximizing profit. This includes cutting down expenses such 332 as cutting down excessive employees' pay (CEOs pay especially) and setting appropriate pay 333 package for its employees.

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Remuneration can stimulate employees to be more productive as well as increasing the 335 overall employee morale. For this reason, for the efficiency of the workers to be made 336 certain, the concept of remuneration should be treated with utmost thoughtfulness.

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Therefore, based on the findings, there should be proper compensation review as this will 338 increase the productivity of the executives. Since increased pay is necessary for the efficiency of the 339 workers, it is advised to ensure a considerable pay as this will ensure for efficiency in the 340 organization. There is need to sensitize executives in Nigeria banks on the need to align their 341 payment to performance measures as these measures are directly linked to wealth maximization and 342 firm performance.

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In addition, policymakers (board of directors) should focus on designing compensation 344 apparatus that concentrate on long-term, rather than short-term incentives (e.g., stock options) that 345 have a capacity to maximize the long-term value of the firm. Since the main objective of setting up 346 any business is to make a profit, business organizations should sort out ways at maximizing profit.

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This includes cutting down expenses such as cutting down excessive employees' pay (CEOs pay 348 especially) and setting appropriate pay package for employees. Therefore, the board should