Effect of Executive Compensation on Financial Performance of Listed Non-Financial Firms in Nigeria

Sha'awa Mohammed; Abbas Umar Ibrahim; Faiza Maitala

doi:10.26668/businessreview/2023.v8i5.1570

Authors

Sha'awa Mohammed https://orcid.org/0000-0001-7249-9144
Abbas Umar Ibrahim https://orcid.org/0000-0001-8273-9148
Faiza Maitala https://orcid.org/0000-0001-5521-3714

DOI:

https://doi.org/10.26668/businessreview/2023.v8i5.1570

Keywords:

Executive Salary, Executive Bonuses, Stock-Based Compensation, Executive Pension, Return on Equity

Abstract

Purpose: Examine the effect of executive compensation on the financial performance of listed non-financial firms in Nigeria.

Theoretical framework: The continuous rise in compensation of executives in Nigeria without a corresponding increase in firm performance has continued to generate intense debates and controversial opinions within the corporate environment. Consequently, the need to understand the degree of relationship between executive compensation (measured by salary emolument, bonuses, stock-based compensation and pension) and firm performance (measured by return on equity).

Design/methodology/approach: A correlational research design was used based on a filtered census population of 63 firms listed on Nigeria’s stock exchange. Secondary data was obtained from the annual financial reports of these firms and analyzed using the generalized methods moments.

Findings: The study found salary emoluments, bonuses and stock-based compensation, as measures of executive compensation, have negative impact on the return on equity of listed non-financial firms in Nigeria. Where executive pension claims a positive impact on the return on equity of listed non-financial firms in Nigeria.

Research, Practical & Social implications: Regardless of executive compensation being an incentivizing tool for the executive team, which has a significant impact on company strategy, decision-making, and value creation as well as enhancing executive retention, different components of executive compensation exert different effect on the financial performance of firms as confirmed by this research.

Originality/value: The research points out different executive compensation measures have different impacts on performance. Consequently, the need for stakeholders to determine the perfect combination of the compensation measures that best drive performance.

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