Is there a relationship between executive compensation and company performance? - A study of the four Swedish major banks

Abstract

Background & Problem: Executive compensation has for a long time been a topic of a heated debate, and the public criticism has further intensified as a consequence of all corporate governance scandals that have been revealed in media lately. The emergence of the discussion has its foundation in the fact that companies are under-performing and share prices are trailing simultaneously as Chief Executive Officers (CEOs) receive higher compensations despite the prevailing economic crisis. Purpose: The purpose of this thesis is to make a comparison of companies within the Swedish bank sector in order to observe whether there is a correlation between paid compensations and profitability. Methodology & Delimitations: We chose to study four banks that all have significant shares of the Swedish market. Their annual reports have been used as the major instrument to gather information. We have limited the study to the period 1998-2008 since this period involves recessions as well as upswings. The access to electronically published annual reports was also considered as good for these years. Result & Conclusion: The result from the empirical findings showed a significant correlation between paid compensations and financial performances. Some exemptions and differences were however seen between the banks and the years. Further Research: A study within the respected area, including both primary and secondary data is to be considered as a thesis of great interest. This would give a better overall and more complete overview of the entire compensation issue.