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J. Risk Financial Manag. 2014, 7(2), 28-44; doi:10.3390/jrfm7020028

Remuneration Committee, Board Independence and Top Executive Compensation

1,*  and 2
1 Faculty of Department of Accountancy, National Cheng Kung University, 1, University Road, Tainan 701, Taiwan 2 Faculty of Department of Quantitative Finance, National Tsing Hua University, 101, Sec. 2, Kuang Fu Road, Hsinchu 300, Taiwan
* Author to whom correspondence should be addressed.
Received: 21 February 2014 / Revised: 10 March 2014 / Accepted: 25 March 2014 / Published: 15 April 2014
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In this study, we examine whether the levels and structures of top executive compensation vary discernibly with different levels of board independence. We also examine how the newly mandated adoption of the remuneration committee (RC) in Taiwan affects the board independence-executive pay relation. The mandatory establishment of RC for Taiwanese public firms, starting in 2011, is intended to strengthen the reasonableness and effectiveness of the executive compensation structure; thus, it is timely and of interest for practitioners and regulators to understand whether the establishment of RCs can effectively discipline top executive compensation policies. We first find that CEOs of firms that do not appoint independent directors have greater levels of annual pay than is the case for firms that have appointed independent directors, after controlling for the effect of CEO pay determinants. Second, we find that CEO pay for early RC adopters is more closely related to firm performance. Third, we find that the establishing of RCs may decrease CEO pay and enhance the pay-performance association, in particular for firms that have not appointed independent directors; however, this effect is not found to be statistically significant.
Keywords: remuneration committee; pay-performance relation; CEO compensation remuneration committee; pay-performance relation; CEO compensation
This is an open access article distributed under the Creative Commons Attribution License (CC BY) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Kuo, C.-S.; Yu, S.-T. Remuneration Committee, Board Independence and Top Executive Compensation. J. Risk Financial Manag. 2014, 7, 28-44.

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