CEO pay ratio versus financial performance in Polish public companies

Abstract

In this paper, we aim to investigate the relationship between CEO pay ratio and corporate financial performance in Polish public companies. Using a sample of 259 companies listed on the Warsaw Stock Exchange, we demonstrate that links between the pay gap and accounting measures of performance differ from market ones. Our findings indicate a negative correlation between CEO pay ratio and return on sales. This implies that companies pay executives less during periods of high profitability, possibly to avoid the negative impact of excessive pay on firm performance. We also discover that the pay gap, measured by CEO pay ratio, is positively linked with Tobin’s Q and annual stock returns. A high CEO pay ratio signals strong incentives for top executives to perform, potentially leading to better strategic decisions and, consequently, higher Tobin’s Q ratios and annual stock returns.