Aligning Executive Compensation to Risk-taking and Performance: An Assessment of CBN 2014 Corporate Governance Code
Abstract Regulators in some countries have restricted executive compensation or improve their corporate governance code to forestall the reoccurrence of the global financial crises. The paper assessed the impact of the CBN 2014 corporate governance code on executive compensation paid by banks and ascertain whether the the Code has achieve it objective of aligning executive compensation to performance and risk-taking. Thirteen listed DMBs were were studied during the period 2009 to 2018 comparing the period before (2009 - 2013) with the period after (2014 – 2018) the CBN 2014 Corporate Governance Code using regression analysis and Wald Test of Equality between coefficients. The study found that CEO Pay was not significantly aligned to profitability and risk-taking before and after the New Code. The study also found that the relationship between executive compensation and performance and executive compensation and risk-taking before and after the New Code is not significant. Therefore, there is the need for CBN to introduce new regulations on the structure of executive compensation, which will include risk, short-term and long-term performance elements in line with global best practice. Keywords: CEO Pay, regulating executive compensation, Executive Compensation, Code of corporate governance, risk-taking, performance, CBN