Does Higher Pay Mean Higher Performance?

<p>In this article, we examine the relationship between CEO pay and firm performance in the medical technology sector across cultures, via agency and efficiency wage theories. Specifically, as CEO pay increases, firm performance will also increase. Hofstede’s cultural dimensions, including individualism, masculinity, power distance, uncertainty avoidance, and indulgence, are used as moderators in the focal relationship. We found that cultures high in individualism and indulgence strengthen the relationship, while cultures high in power distance weaken it. These results indicate that agency and efficiency wage theories are supported across cultures, but only when using fixed and total CEO compensation and return on assets as the measure of firm performance. Variable compensation, measured as the value of option grant awards and restricted stock awards, was insignificant in the relationship across all cultural dimensions. These findings suggest that fixed CEO pay may be more strongly linked to firm performance than previously thought. </p>