- Title
- COVID-19 crisis, firm outcomes and CEO compensation
- Creator
- Tusiime, Immaculate
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2024
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- The COVID-19 pandemic crisis had a catastrophic impact on firm outcomes across a number of business sectors, resulting in earnings losses, reduced operations, and layoffs for many employees. To indicate they were sharing the financial pain with employees, many CEOs accepted voluntary pay cuts. This thesis, comprising three studies, investigates the impact of the COVID-19 pandemic crisis on firm outcomes and CEO compensation. The three studies consist of a systematic literature review and two separate empirical investigations. The systematic literature review aims to identify gaps and opportunities in the existing literature regarding the impact of CEO characteristics on firm outcomes during the COVID-19 pandemic and the pandemic’s effect on CEO compensation. The review finds two knowledge gaps in the literature. First, despite the pandemic’s adverse impact on firm outcomes, overall CEO compensation did not decrease. While public outrage is highlighted as a significant driver behind CEO pay reductions during COVID-19, corporate social responsibility (CSR) and firm performance were not the primary drivers of these cuts. These findings highlight a gap in understanding the relationship between CEO pay and firm performance during COVID-19, suggesting the need for further empirical studies on CEO pay-performance sensitivity. Second, overall CEO compensation did not decline during the pandemic due to increases in forms of compensation other than base pay, revealing another gap in the literature on changes in CEO pay structures. This discrepancy suggests a need for further study to investigate whether CEO compensation structures changed during the pandemic and whether equity-based compensation substituted for cash-based pay. This thesis proceeds with empirical studies one and two to delve deeper into the issues identified in the systematic literature review. The first empirical study, discussed in Chapter 3, examines the impact of the COVID-19 pandemic crisis on CEO pay-performance sensitivity in the top 200 Australian-listed companies from 2018-2021. Specifically, the study investigates whether corporate governance structures, CEO power, and CSR practices affect this relationship. Results show that while CEO pay decreases during the COVID-19 pandemic, CEO pay-performance sensitivity during the pandemic reduces in firms with weak governance, high CEO power, and high CSR scores. Two views may explain these results: entrenched CEOs did not reduce their pay to reflect poor performance, alternatively, altruistic CEOs voluntarily accepted pay cuts to maintain good stakeholder relations. Further tests support the entrenched CEO view but not the altruistic view, highlighting the importance of effective corporate governance structures in CEO pay-setting processes during a crisis. The second empirical study, detailed in Chapter 4, investigates the effect of the COVID-19 pandemic on changes in CEO equity-based compensation among the top 200 Australian-listed companies from 2018-2021. This study reports an increase in the usage of equity-based compensation in CEO pay structures for high-growth firms, proxied by market-to-book ratios and R&D intensity, and firms experiencing cash constraints during the COVID-19 pandemic. Traditional performance indicators, including stock returns, return on assets, sales growth, and stock volatility do not affect CEO pay structures amidst the pandemic. Further analysis shows that increases in equity-based compensation have a corresponding decrease in cash-based pay. However, t-tests indicate a modest reduction in overall CEO compensation during the pandemic, suggesting that the reduction in cash-based pay was minimal compared to the increase in equity-based pay. Overall, empirical study one reveals CEO power as the main driver of decreased CEO pay-performance sensitivity during the pandemic. On the other hand, empirical study two identifies market-to-book ratios, R&D intensity, and financial stability as significant determinants of increased use of CEO equity-based compensation during COVID-19. Findings from the first empirical study suggest that boards and policymakers should advocate for publicly listed companies to establish robust corporate governance frameworks to align CEO compensation with shareholder value, even during challenging economic periods. Data from the second empirical study indicates that boards should prioritise market-to-book ratios, R&D intensity, and financial stability when designing compensation policies during economic crises.
- Subject
- COVID-19 crisis; firm outcomes; CEO compensation; economic crises
- Identifier
- http://hdl.handle.net/1959.13/1512926
- Identifier
- uon:56682
- Rights
- Copyright 2024 Immaculate Tusiime
- Language
- eng
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | ATTACHMENT01 | Thesis | 1 MB | Adobe Acrobat PDF | View Details Download | ||
| View Details Download | ATTACHMENT02 | Abstract | 201 KB | Adobe Acrobat PDF | View Details Download |