Good day chairman, good day distinguished panelist and good day my fellow students.
My name is Ekiens a Ph.D. management student here to present my thesis proposal titled the impact of Chief Executive Officer's (CEO) compensation on firm's performance in the Nigeria Banking industry.
This is a quantitative research based on secondary sources of data. The study examines the influence of Chief Executive Officer's (CEO) compensation on firm performance. Several pieces of evidence from the studies of compensation and performance have exhibited mix outcomes and reactions, with some suggesting that the alignment of managers’ interest with those of shareholders through right incentive packages will encourage the executive to act in the good interest of shareholder. Critics, however, argue that CEO’s compensation is excessive because it is weakly linked to firm performance and that most CEO’s receive too much compensation pay (Compensation is pay for services during the course of employment).
Consequent upon this, this study attempts to investigate upon existing research. Accordingly, this study tries to find out the extent CEO’s compensation influences the banking industry performance. The specific objectives are; To examine the relationship between CEO compensation and firm performance in the Nigeria banking industry and To examine the relationship between firm’s size and firm performance in the Nigeria banking industry.
The reason for picking the banking industry is due to the banking crises we experienced some time ago. According to Sanusi (2010), the banking crises in Nigeria was attributable to executive governance malpractice because governing boards ignored good global best practices through the negative influence of the executive management, who participate in obtaining unsecured loans at the expense of the depositors' funds. In essence, this research believes that investigation in this area has the potential of enhancing the financial performance of the banking industry and other sectors at large. In addition, the choice of the banking industry in Nigeria is informed by the availability of good financial framework and high-level declared profits among other sectors in Nigeria.
Secondary data as a research instrument for this study is limited to the research questions. The questions this study sought to answer is as follows
Is there any significant relationship between CEO compensation and firm performance in the Nigerian banking industry?
Is there any significant relationship between firm size and firms’ performance in the Nigerian banking industry?
The theoretical framework looked into various theories that have been formulated in the field of compensation management and its impact on firms’ performance. This includes the Managerialism theory that has a concept which is built on the premise that separation of ownership from control can and does cause divergence of interest between the management and owners. The stakeholder theory, however, has a concept that the CEO is also affected by the outcomes of the firm. A positive firm performance will eventually make his position stronger. Thus setting appropriate incentives for the CEO can give positive results to the firm.
The importance of this study cannot be overemphasized due to the fact that, it holds a lot of benefits to ensure continued existence and survival of businesses. The study clarifies the argument on whether effective reward and compensation system adds value to an organization.
Admittedly, in pursuing this investigation and study, a number of factors acted as impediments and constraints to the study. The fact that the samples are drawn from one particular area on the basis of which generalized conclusions are made, is in itself a limiting factor. However, I was resolute in ensuring that the study was thoroughly carried out in the face of all limitations
This study is deemed to be an explorative (literature search) type of research design with a descriptive (panel study) side to it. In other to elicit information to examine the relationship between the variables, the convenience sampling technique, with the combination of both the cross-sectional and time-series data (panel data) were used since they provide greater precision and guard against having an illusive sample. The justification for choosing this design is due to the fact that the combination provides more informative estimates and it’s more efficient.
The population of the study consists of all banks quoted on the Nigeria Stock Exchange as at 31st December 2016. 15 quoted banks were quoted as of 2016. The convenience sampling technique was employed for the purpose of picking the sample. 10 banks were picked to be sampled based on the availability of the financial statement of the various banks and the banks sampled are listed on page 38. The scope of the study is limited to 5years between the periods 2010 to 2014.
The following research hypotheses were formulated and tested, this includes; There is no significant relationship between CEO compensation and firms’ performance in the Nigerian banking industry. Secondly, There is no significant relationship between firm size and firms’ performance in the Nigerian banking industry. Consequently, the panel least square regression technique was used to test the hypotheses and the rule of thumb was used to test for significance.
Dependent variable: Firm performance (which is proxy by return on asset)
Independent variables: CEO compensation and Firm Size
The Panel Least Square result shows a high value of R2 given as 0.662188 implying that a 66.2% systematic variation in Return on Asset is explained by Chief Executive Officer’s Compensation and Firm SIZE. Only 33.8% is left unexplained and this is assumed to be captured by the stochastic error term, μ. This result shows that the model is a good measure of fit.
The adjusted R2 is given as 0.612432. This means that after adjusting for the degree of freedom, the adjusted R2 explains approximately 61.2% systematic variation in the dependent variable. The higher the adjusted R2, the lower the residual variance error
The F-ratio with the value of 37.73448 shows that the model easily passes the F-test at 5% level of significance and this means that the hypotheses of a significant linear relationship between the dependent and independent variables taken together are validated. It shows that the overall significance of the model is met.
The Durbin Watson test for 1st order serial correlation shows the absence of autocorrelation as we have a value of 1.858482.
Based on theoretical proposition a close observation of the coefficients shows that they are correctly signed. Therefore, CEOC and FSIZE are positively related to ROA.
Consequently, according to the results, the findings indicate a relationship between CEO compensation and firms’ performance as well as a relationship between firm size and firms’ performance.
With respect to the findings on table 4, the T-statistics using the rule of thumb which states that when the t-value of the parameter estimate is greater than or equal to 2 then it is statistically significant in explaining the dependent variable, but when it is less than 2, then it is not statistically significant.
The t-values show that CEOC and FSIZE which have values of 2.377685 and 3.577520 respectively, taken in their absolute form are statistically significant. This means that the variables are an important determinant in explaining ROA in the selected companies.
Subsequently, results indicate that CEO’s compensation and Firm size does influence the banking industry performance.
As a result, we reject the null hypotheses and accept the alternate hypotheses, which states that there is a significant relationship between CEO compensation and firm performance as well as a significant relationship between firm size and firms’ performance in the Nigerian banking industry.
Based on the findings, the study recommends that since increased pay is necessary for the efficiency of workers, it is advised to ensure a considerable pay as this will guarantee for efficiency in the organization.
The issue of mixed findings noticed in the literature, suggests that the issue of CEO compensation and firm performance is far from resolved. In view of the literature, where cash or equity is used the findings appear to vary. Also, the measure for financial performance appears to also account for the diversity in the findings. Nevertheless, since the main objective of setting up any business is to make a profit, business organizations usually sort out ways of maximizing profit. This includes cutting down expenses such as cutting down excessive employees' pay (CEOs pay especially) and setting appropriate pay package for employees. Therefore, the board should endeavor to align CEO’s pay with the firm's capacity to pay the amount of compensation the firm can really afford.
The researcher is not yet aware of any such previous study and if there is then the present study is corroboration expanding the frontiers of knowledge.
Based on the topic in relation to the findings, it can be safe to say that CEO compensation could have a lasting impact on firms’ performance in the Nigerian banking industry.
That ends my presentation