Assessing the effect of managerial power on firm performance through the perceptual lens of executive remuneration

Executives or top management in any organization play the central role in designing firms' policies including their own remuneration, investments and capital related decisions. Due to their prime importance, executives have greater access to all important information related to organizations. If such personals have greater control over the board or organization, it alludes as managerial power. Concisely, if managerial power is high then the management may misuse such information for their personal benefits. Therefore, considering the importance of managerial power, the current study aims to investigate the effects of managerial power and executive remuneration on firm performance. In order to empirically test the proposed relationships, the current study applied PLS-SEM approach by using the data of Sugar & Allied industry of Pakistan Stock Exchange for the year 2014. The results of the current study indicated that direct effect of managerial power on firm performance did not exist, however, the empirical findings showed that managerial power had a significant effect on executive remuneration. Furthermore, managerial power also significantly influenced the firm performance through the executive remuneration or remuneration mediated the relationship between managerial power and firm performance. Therefore, the current study suggests that firm should take necessary actions to reduce the managerial power and design the pay of top management in a way that any harmful action of managers against the firm's wealth would significantly affect their own benefits.