Executive Compensation and Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

The study focused on executive compensation and financial performance of listed deposit money banks in Nigeria. Executive compensation was measured with Directors’ compensation, CEO compensation and chairman’s compensation whereas financial performance was measured using return on assets, return on equity and earnings per share. Ex-post facto research design was employed in the study. Using ten selected deposit money banks in Nigeria, data was collected from the annual reports and financial statements of the ten (10) banks. Pre-estimation test carried out showed that the variables were not normally distributed necessitating the use of generalized method of moments (GMM) regression. Results reveal that Directors’ compensation, has a positive but insignificant effect on return on asset (ROA) and return on equity (ROE). While CEO compensation and chairman’s compensation have significant but negative effect on return on asset and return on equity of listed deposit money banks in Nigeria. Based on these findings, the study conclude that executive compensation do not have significant effect on financial performance of listed deposit money banks in Nigeria. The study therefore recommends amongst others that deposit money banks develop a more performance-oriented compensation structure that closely ties executive pay particularly CEO and chairman’s compensation to measurable financial indicators such as ROA and ROE. Linking bonuses and incentives to long-term performance metrics rather than short-term gains can reduce agency problems and ensure that executives act in the best interest of shareholders.