Executive Compensation in Emerging Markets: Theoretical Developments and Empirical Evidence

This chapter investigates the theoretical frameworks and recent empirical evidence of executive compensation in emerging markets. The author outlines theoretical evolutions and identifies unique aspects of institutional features in determining the pay scheme in emerging markets. Due to family ownership and political influence within state-owned enterprises (SOEs) in emerging economies, the agency-based bargaining takes place in firms with strong governance while entrenchment-based skimming takes place in firms with weak governance, and this could lead to a relation-based rather than a market-based compensation contract. The literature seems to be heading into the direction of considering executive pay as an outcome of pay setting practices, embedded in socially constructed corporate governance arrangements. The author highlights the importance of executive compensation studies in emerging economies and calls for future research by integrating the institutional features of emerging markets into investigations of the various pay practices across different jurisdictions.