New Zealand Institute for the study of competition and regulation inc.

Abstract

Although CEO membership of the compensation committee is extremely rare in the United States, it is relatively common in New Zealand.  Motivated by this institutional difference, we estimate a standard model of executive compensation using 1997-2005 New Zealand data and compare the results to those previously obtained from the United States.  We find that: (i) the average pay-performance sensitivity is relatively low in New Zealand, (ii) the sensitivity is significantly lower in firms that have CEOs on the compensation committee, and (iii) this difference is asymmetrical - CEOs with compensation committee membership achieve a lower average sensitivity in high-return years, but not in low-return years.  Having a direct input into one's own pay discussions apparently pays off.