Does Executive Compensation Negatively Affect Firm Performance in a Crisis?

Abstract

The goal of this research is to assess the effect of types of executive compensation on firm performance in the recent COVID-19 crisis in the Netherlands. The reason for this is that good corporate governance mechanisms depend on organizational and environmental circumstances, which differed during the COVID-19 crisis. Hence, this research answers the following research question: ‘What is the role of certain forms of executive compensation on firm performance during the COVID-19 crisis in the Netherlands?’. The research has been conducted using a fixed-effects regression analysis from panel data about the Netherlands’ 67 largest listed firms. It can be concluded that incentive executive compensation positively impacts return on equity during crisis times. Furthermore, total executive compensation negatively impacts Tobin’s Q during crisis times. However, most effects of types of executive compensation on firm performance were non-significant in crisis times. Thus, if firms want to alter their executive compensation, they should apply incentive-style compensation structures to improve firm performance during crisis times.