임원 보수한도는 효과적인 지배구조 장치인가? 보수한도와 성과대비 보수 수준과의 관계

There is a growing concern over the efficacy of executive pay cap. Pay cap is originally designed to prevent excessive pay by requiring shareholder approval on the maximum level of executive pay. However, the management may increase the pay level as they want, once they get an approval on a high pay cap. This article examines whether the pay cap serves as an appropriate controlling mechanism over executive pay or it merely serves as a justifying mechanism for excessive pay. Drawing from Korean listed firms during 2002-2019, we first document that higher pay cap is associated with higher pay. More importantly, we find that firms with higher pay cap tend to pay higher executive pay for the same level of accounting performance, indicating that higher pay cap justifies higher pay regardless of firm performance. Cross-sectional analyses further suggest that the findings are more pronounced for firms under a weak corporate governance. Lastly, we find that high executive pay combined with high pay cap is negatively associated with future returns on asset. Collectively, our study suggests that, in practice, executive pay cap may not serve as a tool to motivate executives to improve firm performance, but rather hinder firm performance by serving as as a tool to justify a high level of executive pay.