Firm Performance and Executive Compensation in Private Commercial Banks: Evidence from a Developing Country

Abstract

This paper aims to investigate the relationship between Chief Executive Compensation and firm performance amongst the private commercial banks in Bangladesh. Based on five years data for 21 private commercial banks, ice compared the growth of various firm performance indicators, namely, EPS, P/E ratio, cost of fund and total asset, with that of CEO compensation. We found moderate but significant relationship between CEO compensation and EPS, and P/E ratio; which are consistent with extant literature. However, our findings show that total asset and cost of fund are both negatively associated with CEO compensation and thus open a new paradigm in this field. We conclude that private commercial banks in Bangladesh have put much emphasis on market based earnings, which may not pay off in the long run.