Effect of CEO Pay on Bank Performance in Nigeria: Evidence from a Generalized Method of Moments
Olaniyi Clement Olalekan *
Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria
Obembe Olufemi Bodunde
Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria
*Author to whom correspondence should be addressed.
Abstract
Issues surround the persistent increase in chief executive officers’ (CEO) pay of some Nigerian quoted banks have been a subject of debate among stakeholders as touching whether the pay enhances or deteriorates bank performance. In an attempt to unravel the hidden facts around the pay, this study examines the impact of CEO pay on performance of 11 selected Nigerian quoted banks between 2005 and 2012, using a dynamic generalized method of moments (GMM). The study reveals that the CEO pay exerts significant but negative influence on bank performance in Nigeria. This study therefore concludes that rather than being an important corporate governance mechanism to align the interests of CEO with those of shareholders, the CEO pay of Nigerian quoted banks is indeed part of agency problem in the industry. Hence, this calls for appropriate and well- guided incentives and compensation packages that will align interests of bank chiefs with those of shareholders.
Keywords: CEO pay, Nigeria, bank performance, corporate governance, agency problem, endogeneity, GMM