Directors\u27 remuneration and performance in the Australian banking sector

This paper explores the links between directors\u27 pay and performance within the Australian banking sector using panel data for the 1993-2004 period. The links between CEOs\u27 pay and performance is investigated also. Several earnings models are estimated and different estimation techniques are used. The results indicate that there is no link between directors\u27 pay and firm performance with a one year lag. However, there is a more distant payperformance link, with directors\u27 pay influenced by shareholders\u27 returns with a three year lag. The other key determinants of directors\u27 pay in the Australian banking sector are bank specific managerial policies, lags in the administration of pay, bank size and board composition. A clear and strong positive and direct association between CEO remuneration and performance is established.