Title: An empirical examination of the role of the remuneration committee in the relationship between board of directors and remuneration

Authors: Syaiful Baharee Jaafar; Mohd Mohid Rahmat; Kieran James

Addresses: Commerce Department, Polytechnic Tuanku Sultanah Bahiyah, Kulim Hi-Tech Park, 09000, Kulim Kedah, Malaysia ' Faculty of Economics and Management, The National University of Malaysia, 43600 UKM, Bangi Selangor, Malaysia ' School of Economic and Business, University of Fiji Lautoka Campus, Private Mail Bag Laukota, Ba Province, Republic of Fiji

Abstract: There is a serious agency problem when a board of directors' remuneration is not linked with performance. Therefore, a remuneration committee's role is to ensure the remuneration follows proper policies and procedures. This study examines the relationship between the board of directors and remuneration as moderated by the remuneration committee. Its sample size is 386 firms listed in Bursa Malaysia studied from 2007 to 2009. Findings from this study indicate a significant positive relationship between remuneration committees and remuneration, which suggests the effectiveness of the committees. Furthermore, evidence from this study shows that the board of directors has a significant negative influence on non-executives' remuneration. Our study suggests that the non-executive director has less power in remunerative decisions than the executive director, reducing his or her own remuneration. However, this study cannot find evidence of a relationship between the board of directors and executive remuneration.

Keywords: remuneration committee; board of directors; executive remuneration; non-executive directors; Malaysia; remuneration decisions.

DOI: 10.1504/IJMEF.2015.070778

International Journal of Monetary Economics and Finance, 2015 Vol.8 No.2, pp.126 - 142

Available online: 23 Jul 2015 *

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