The Securities and Exchange Law was amended to request listing companies establishing compensation committees at the end of 2011. It is still too early to evaluate if the compensation committee functions well due to the short period of existence. For this reason, we focus mainly on the determinants of compensation committee quality, especially on firms with excess executive and director compensations.
Using Taiwanese listed firms as samples in 2011, empirical evidences indicate significant negative relationships between excess executive compensations and a firm’s compensation committee quality. This implies that firms with excess executive compensations demand weaker monitoring from compensation committee on management remuneration. However, we find insignificant associations between excess director compensations and compensation committee quality, perhaps due to the overwhelmed media and legislator attentions on directors’ compensation. Our results are consistent and robust after a battery of tests using different years and method to measure excess compensations.
The literature on compensation committee quality is quite limited and we are the first exploring the relationships between excess compensation and compensation committee quality using samples from the emerging market. The results contribute to the literature and provide policy implications.
