Board Structure, Board Assiduity and CEO Pay-Performance Sensitivity: Evidence from Pakistan
DOI:
https://doi.org/10.47067/ramss.v8i2.525Abstract
This paper investigates the relationships between board structure, board assiduity, and CEO pay-performance sensitivity (PPS) in Pakistani listed companies. It aims to understand how different board characteristics influence CEO compensation practices, both directly and indirectly through board engagement. Using 634 firm-year observations from firms listed on the Pakistan Stock Exchange (PSX) 100 Index between 2013 and 2022, the study employs path analysis to examine the direct effects of board structure (executive directors, non-executive directors, CEO duality, and female directors) on CEO PPS, and the indirect effects mediated by board assiduity. Findings reveal that non-executive directors positively influence CEO PPS, while executive directors indirectly enhance PPS through increased board assiduity. Surprisingly, female directors negatively affect both board assiduity and CEO PPS. CEO duality has no significant effect. Board assiduity emerges as a significant mediator, particularly in the effects of executive and female directors. Robustness of the mediation and causal relationships is confirmed through bootstrapping, Two-Stage Least Squares (2SLS), and the Sobel test. The research contributes to the corporate governance literature by providing an examination of board assiduity as a mediating mechanism in the effect of board structure on CEO PPS. New insights in the intricate interaction of board composition and CEO compensation are offered for an emerging market. It challenges some conventional wisdom about board diversity from the results and draws attention to the fact that both direct and indirect effects need to be considered in governance research.
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