ABSTRACT
The critical component of the corporate governance system is when a board of directors actively seeks to protect owner's interests by monitoring top management actions and devising appropriate executive compensation contracts. Agency theory adepts suggest that the incentive design and the monetary magnitude of chief executive officer (CEO) compensation packages represent a viable solution to the problem of moral hazard. Although governance researchers have long been focusing on the examination of the effectiveness of CEO compensation as a mechanism of incentive alignment, the interest of the general public in this topic intensified during the 1990s. The typical components of executive compensation packets are the base salary, short-term bonuses, long-term incentive plans (LTIPs), benefits, and perquisites. The cross-country variations in executive compensation magnitude and structure can also be explained by cultural factors, corporate governance systems, legal infrastructures, and specific regulatory interventions with regard to CEO pay.
