The relationship between CEO compensation and financial performance in Jordanian public shareholding industrial companies

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This study aimed to examine the relationship between the compensation received by chief executive officers (CEOs) and the financial performance of Jordanian public shareholding industrial companies listed on the Amman Stock Exchange (ASE) from 2010 to 2017. To measure the variables of interest, secondary data published on the ASE website were processed to become preliminary data suitable for the study. The study population consisted of 56 companies, 25 of which met the inclusion criteria. The results of the analysis of the data on these 25 companies revealed a large difference between the amount of financial compensation received by CEOs and the earnings per share (EPS) received by shareholders. The results also showed a statistically positive and significant relationship between the amount of CEO compensation and the financial performance of industrial companies. Furthermore, return on assets (ROA), EPS, and leverage have a statistically negative and significant relationship with financial performance. However, the net profit margin has a statistically positive and significant relationship with financial performance. Besides, the results showed a positive and significant relationship between the age of the CEO and the amount of compensation received. On the other hand, Tobin’s Q model demonstrated that the relationship between CEO duality and the amount of CEO compensation is not statistically significant. Therefore, the study recommends using more than one type of compensation for the CEOs of public shareholding industrial companies in Jordan and that CEO compensation should be related to financial performance.

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    • Table 1. Distribution of companies by industry
    • Table 2. Summary statistics of the variables
    • Table 3. Pearson’s correlation coefficient values for the relationships between the variables
    • Table 4. Tolerance and Variance Inflation Factor (VIF) test
    • Table 5. Correlated random effects – Hausman test
    • Table 6. Results of the regression equation (first model)
    • Table 7. Results of the regression equation (second model)
    • Formal Analysis
      Marie H. Bani Khaled
    • Funding acquisition
      Marie H. Bani Khaled
    • Project administration
      Marie H. Bani Khaled
    • Resources
      Marie H. Bani Khaled
    • Writing – original draft
      Marie H. Bani Khaled
    • Writing – review & editing
      Marie H. Bani Khaled