An Empirical Study of Company Reputation and Executive Compensation

This study investigates whether corporate reputation is associated with CEO compensation. The sample includes publicly-traded Taiwanese companies from 2005 to 2014. The empirical results indicate that firms with higher reputation give CEOs higher levels of excess compensation. This findings may reflect that CEOs in more reputable firms have higher capability leading to greater compensation levels. In addition, we find that there is a significantly positive association between corporate reputation and pay-performance sensitivity of CEO compensation when performance is measured by return on assets. The results suggest that more reputable firms increase the link between CEO pay and accounting performance to reduce agency problems. All the empirical results are robust to controlling for potential self-selection bias resulting from using the most-admired firms as the measure for corporate reputation.