The Impact of Executive Compensation on Firm Performance

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Two main theories which support executive compensation towards firm performance these are Governance theory and Human Capital theory. Governance theory explain that it is estimated that executive’s strategies should aim to create long- term shareholder value and that they should receive closely related rewards. Frames can safely interests that do not coincide with those who continue the business owners, knowing that the owners have limited ability to influence the executive rewards. Consequently, the executive compensation package can be effectively linked to the performances that create or maximize shareholder values. Marginalized and agency theories are subsets of governance theory, with questions that removes met in business decision-making executive processes. Advocates of this theory believe that a committed leader is to act in the best interest of the owner, if he has a personal interest. Many contemporary executive compensation programs are structured to reflect this theory by paying substantial amounts of compensation in the form of stock options.

The other theory Human Capital Theory says that Human capital theorists under search individual characteristics of the executive in an attempt to predict the amount of remuneration. These include the executive intrinsic factors such as their knowledge base. You can calculate the return on investment in human capital. Human capital is always very much important for the firm performance whether it is small or large organization perfect and satisfied human capital give more efficient services to the firm and enhance the firm performance. Leaving on any amount of human capital, is solid, the value is set. This in turn, is how much the company will pay for their services.

According to my independent variables Salary and the Board Size have much impact on executives. CEO compensation can be replace by salary but now a day’s stock option put for them as a bonus/incentives. CEO compensation and shareholder also have a positive relation between them as CEO encourage the shareholder to purchase more shares for the companies at market value so that ore share sell and profitability for the organization get increased. As in this research the second independent variable is Board Size, in this research if the board size increase it will associate with better the share price of the firm which directly effect the firm performance in a positive way. For the share price the board size matter a lot when you have more shareholder for the company then you have to give dividend to all of them which can be somehow little expensive. Broadly in line with forecasts, the board size was positively correlated with firm value between companies - tests, and changes in the size of the plates are positively correlated with annual stock of purchase shares. Latest results of the study indicate event responds favorably on board increases and the unfavorable council to reduce the large size. This research is to find the structure of the dynamic relationship to the performance of payment purpose in CEO compensation and quantifies the impact of the introduction of a more complex model of the strong financial performance on an estimate of the sensitivity of the performance of executive compensation. These results suggest that compensation is currently responding to the consequences of past performance, but the impact is significant decomposition within two years. This is very different models of the effects on performance and progress infinitely implied assumed much of the empirical literature compensation in depend variable the Return on asset and return on equity both these equities get increased as proper CEO or Executive compensation took place and their impact on firm performance will led the company to higher profitability. Return on asset is basically an indicator how profitability of a company is very relative to its total assets a company have. ROA gives an idea how effective management is using its assets to generate more profit for the company.

The significance of this research to determine the effect of ownership structure ( concentration, inconsistencies ) on executive compensation ( stock options and the level of compensation allocated to shares ) and management for a number of variables characterizing the Board of Directors ( the composition and functions) and performance ( return of equity ).

Problem Statement:

The aim of this study is to find out the right path for the compensation of Executives to lead better firm performance.

Research Objective:

Following are the research objective

- Importance of executive compensation for the firm.

- Executive compensation worth to the recipient.

- Executive compensation have to improve for the coming time for the firms.

- Effect of executive compensation on the firm.

- Improvement in ROA and ROE for the firms.

Theoretical Frame work:

Independent Variables Dependent Variables

- Executive Compensation

- Board Size

- Salary

- Firm Performance

- Return on Equity ROE

- Return on Asset ROA

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Hypothesis:

H1: Executive Compensation have significant effect on firm performance.

H1 (a): Effective Executive Compensation can result to higher return on asset.

H 1(b): Executive Compensation have a great impact on shareholders’ equity.

H 2: Better salary better will be the firm performance.

H 2(a): Salary has a positively effect on return on asset.

H 2(b): Salary has a significant effect return on equity.

H 3: Larger the Board Size more effective will be the firm performance.

H 3(a): Board size has a significant impact on return on asset.

H 3(b): Larger the board size more will be the shareholder’s equity.

Executive Compensation:

H1: