Association between Key Management Personnel Remuneration and the Performance of Authorized Deposit-Taking Institutions in Australia

Abstract

The study investigates the association between each component of key management personnel remuneration (short-term and long-term remuneration) and total remuneration, and the performance of Authorized Deposit-taking Institutions (ADIs) in Australia. Data were collected from 91ADIs regulated by the Australian Prudential Regulation Authority. The study provides evidence that total key management personnel remuneration, short-term key management personnel remuneration and long-term key management personnel remuneration are significantly associated with the performance of ADIs, while the pay-performance association is weaker for long-term remuneration as compared to total remuneration and short-term remuneration. In addition, size of the board, existence of remuneration board committee and composition of remuneration board committee is significantly associated and composition of the board is partially associated with the performance of ADIs in Australia. The findings of the study also suggest that the pay-performance association is more sensitive for short-term remuneration as compared to long-term remuneration, indicating that although long-term remuneration is widely used by ADIs, short-term remuneration is an important part of key management personnel remuneration.