Top Management Compensation and Performance in Russian Companies

Abstract

Konstantin V. Bogatyrev - Moscow State University. M.V. Lomonosov Moscow State University.

E-mail: konstantin.bogatyrev@yahoo.com

The top management remuneration policy of public companies counts among the key decisions that shape the financial architecture and the incentive structure for hired executives in such companies. The factors determining the pay of top managers have been a debated topic both for academia and for the public at large for decades. For Russian companies, however, this question has remained largely unstudied.This paper is intended to rectify this deficiency and contributes to the research on top management remuneration policy and the way in which it relates to performance in Russian corporations. Following an overview of the evidence presented in previous studies focusing on other markets, the paper presents a new empirical study of pay and performance using self-collected data on 93 Russian public companies for the five-year period between 2009 and 2013. The data on key management personnel compensation has been collected from the companies' official reports, including annual or financial reports and other stock exchange reports. The data on other financial indicators has been procured from the Bloomberg Professional® database.Using fixed effect models for econometric analysis, we find evidence of a positive relationship between compensation and business performance in Russia, although this is not evident for every performance indicator. Indeed, both short-term and long-term forms of compensation as well as their sum show a positive relationship to return on assets (ROA), and the respective sensitivities of pay to performance are not negligible. However, institutional or state ownership can weaken this sensitivity. The relationship is only evident in companies with no state participation. Whereas 33 state-owned companies in the sample exhibit no significant relationship of top management compensation to corporate performance, the accounting profits and ROA of the remaining 60 (private) companies serve as significant determinants of remuneration levels.