Impact of Firm Performance and CEO Compensation with Moderating Role of Board Characteristics and Audit Quality

The motive behind conducting this study is to investigate the effect of the agency theory on Chief Executive Officer (CEO) Compensation through alignment among firm performance and CEO compensation. The moderating variables like Board characteristics (Board independence, Board gender diversification) and Audit quality have some connection between firm performance and CEOs compensation. The data for the period 2013 to 2017 is collected from 100 non-financial firms registered at the stock exchange of Pakistan. Empirical evidence show that firm performance is positively connected with CEO compensation which is close to the agency theory's pay-performance correlation plan. The results demonstrate that independent directors on board insignificantly affect the alignment among firm performance and CEO compensation in Pakistan. The Board gender diversity has an insignificant effect on the alignment among firm performance and CEO compensation. In contrast, audit quality positively affects the alignment among firm performance and CEO compensation. Since a higher quality audit gives the organization a realistic view. The control variable results also purported that financial leverage and firm age have no influence on the CEOs compensation but firm size has positive effect on CEOs compensation. This study contributes in future research on the Agency theory and pay related performance contribution.