Directors' remuneration, governance and performance: the case of Malaysian banks

Purpose - The purpose of this paper is to examine the association between directors' remuneration and performance and corporate governance in the Malaysian banking sector, using panel data for 21 banks over the period 2003-2011. Design/methodology/approach - The authors use multivariate regression analysis to examine the relationship between directors' remuneration and performance and corporate governance. The authors also run Granger causality test to determine the existence of causality between directors' remuneration and performance. Findings - The authors find clear evidence of a positive association between directors' remuneration and performance. Further, the causality test reveals that directors' remuneration tends to Granger-cause performance. In terms of governance variables, the authors find that directors' remuneration is positively related to the percentage of independent directors, and negatively related to board size, but unrelated to duality and percentage of director share ownership. The authors also find that remuneration is positively related to bank size and negatively related to capital ratio. The evidence also shows that foreign banks perform better than domestic banks despite the relatively lower pay received by their directors. Practical implications - The findings imply that high-quality directors, as implied by their remuneration packages, are a significant determinant of performance. Originality/value - The results of this study provide new evidence concerning the relationship between directors' remuneration and performance in the banking sector in Malaysia.