Board compensation, CEO compensation and bank performance: role of board independence, nature of banks and COVID-19

Purpose This study aims to examine the relationships among board compensation (BOARDCOMP), chief executive officer (CEO) compensation and bank performance, and the moderating roles of board independence, the nature of the bank and unprecedented economic crises such as COVID-19. Design/methodology/approach Underpinning agency theory, this study examines the roles of board and CEO compensation (CEOCOMP), across different levels of board independence, in mitigating the agency problem and improving bank performance. Based on a sample of 420 firm-year observations for 2008–2022 across 28 listed banks in an emerging economy, the study applies panel regression analysis to test the models. Findings Findings show a negative relationship between CEOCOMP and both accounting-based and market-based measures of bank performance. However, the relationship reverses during the COVID period, when CEO pay is positively associated with performance, which may reflect improved alignment between managerial incentives and firm performance during the crisis. Meanwhile, BOARDCOMP is positively related to performance for conventional banks, but negatively related to the accounting-based performance measure of Islamic banks. Findings also show the negative moderating effect of board independence in the BOARDCOMP–performance relationship for conventional banks. Research limitations/implications These results deepen policymakers’ and regulators’ understanding of the complex roles of BOARDCOMP, CEOCOMP and board independence as corporate governance instruments for improving bank performance across different organizational natures and changing economic scenarios. Originality/value This study adds new insights to the organizational literature on the compensation–performance relationship and on how corporate governance instruments, organizational nature and a changing economic context moderate this relationship in banks in an emerging economy.