Remuneration, remuneration committee, institutional investor and performance in family firms: evidence from Malaysia public listed companies

The Malaysian Code on Corporate Governance (MCCG) is part of the Bursa Malaysia Listing Rules to ensure good governance in the capital market. This study investigates two important elements of MCCG; directors’ remuneration and the characteristics of remuneration committees which give recommendations on directors’ pay. However, the proposal needs to be monitored by either a non-executive or an institutional investor, or both, especially in family firms. According to the structure of a family firm, the same person is often on the board of directors and the remuneration committee. This thesis examines the relationship between remuneration and performance in family firms, represented by the remuneration committee and the institutional investors for 537 Bursa Malaysia listed firms from 2007 to 2009. This study finds evidence to support the hypothesis that directors’ remuneration has a significant and positive relationship with firm performance. However, this study did not find evidence that family firms influence the relationship between remuneration and performance. Also, the study finds that the presence of institutional investors is positively related to firm performance. However, there is no evidence showing that institutional investors influence the relationship between remuneration and performance in family firms. With regards to the remuneration committee, this study finds that family firms’ connections with remuneration committees has a negative relationship. Also, the study finds that the relationship between remuneration committees and remuneration is significantly negatively affected in family firms. This shows that the relationship between the remuneration committee and remuneration is dependent on the family firms. Furthermore, there is no evidence that institutional investors effectively monitor remuneration committees during remuneration in family firms. Thus, this study suggests that the relationship between remuneration committees and the remuneration directors of family firms does not depend on the institutional investor role.