Top Management Compensation and Firm Performance : A matter of context?

Abstract: During the past decades, CEO and board compensation has increased substantially. Top management compensation and firm performance has been an extensively researched subject, and a large amount of previous studies have examined the relation of top management pay and firm performance. However, the findings and discussions have been contradictory and inconsistent. The purpose of this thesis is to examine if there is a relationship between the top management variable compensation and firm performance. We aim to explore this subject in further depth by focusing on the Swedish context and by studying if contextual issues, in terms of different industries, have an impact on this relation. In order to examine this relation multiple regression analysis were performed. The empirical evidence displays that on a general level, incentive systems of the top management have no significant effect on firm performance. We also conclude that the relation of variable pay and performance is contingent on industry. We therefore argue that the context in which the firm operates has an impact on the investigated relation in this thesis. Furthermore, the Swedish context and the Swedish governance model can be considered as one of the main explanations of the attained result.