Executive compensation, firm performance, and Chaebols in Korea: Evidence from new panel data

Using new panel data for 246 publicly-traded firms in Korea from 1998 to 2001, we find that cash compensation of Korean executives is significantly related to stock market performance and that the magnitude of the pay–performance sensitivity is comparable to that of the U.S. and Japan. Further analysis reveals for the first time that such overall significant executive pay–performance link is driven by non-Chaebol firms and that no such link exists for Chaebol firms. The evidence is consistent with the recent literature on the nature of Chaebols in Korea and the current corporate governance reform efforts in Korea that are aimed mostly at Chaebol firms.