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Corporate Governance and the CEO Pay–Performance Link: Australian Evidence


  • We gratefully acknowledge financial support provided by both the Australian National University and the University of New South Wales. We also thank the following people for the useful comments and suggestions they provided in relation to the paper: Sudipto Dasgupta (the editor), an anonymous referee, Joseph Fan, Tom Smith, and participants at the 2006 AGSM Research Camp, the 2007 Asian Finance Association meeting and the 2007 China International Finance Conference. All remaining errors are our own.


We examine the influence of corporate governance mechanisms, namely blockholdings and board structure, on CEO pay–performance sensitivity in listed Australian firms. Results highlight blockholders' role in shaping observed pay–performance associations and their impact varying with their independence and relative magnitude of ownership. Monitoring blockholders increase the sensitivity of long-term at-risk pay to performance, better aligning manager and shareholder interests. However, consistent with a shorter investment horizon, insider blockholders increase (decrease) the responsiveness of cash bonuses (long-term at-risk pay). Finally, consistent with them affording less-effective monitoring, larger boards raise (lower) the sensitivity of known pay (long-term at-risk pay) to performance.