The impact of employee compensation disclosure on corporate governance structure

Authors: Ching-Hsiang Lin, Wanncherng Wang

Journal: Chiao Da Management Review. Jun. 2010, 30(1): 81-119.

Keywords: Employee compensation; Information disclosure; Corporate govemance; Ownership structure

Abstract:
Mandatory compensation discIosure can have great impact on the structure of corporate governance. Our empirical results show that mandatory compensation disclosure decreases major stockholders' and foreign investment institutions' importance in overseeing performance-contingent rewards. Also, consistent with the entrenchment hypothesis, our findings indicate that managerial stock ownership exerts a negative effect on the link between employee compensation and firm performance and that mandatory information disclosure does not mitigate this negative effect. Compared with regular shareholders, major stockholders and foreign investment institutions are more capable of and motivated in monitoring managers' self-interested behavior. Mandatory disclosure facilitates compensation oversight and contributes to the improvement of corporate govemance.