THE IMPACT OF CEO COMPENSATION COMPONENTS ON FIRM PERFORMANCE: EVIDENCE FROM PSX-100 LISTED COMPANIES

Abstract

Executive compensation design is a dominant governance concern in emerging markets, where weak oversight often deepens principal-agent conflicts, making it essential to identify which pay components actually drive firm value. This study investigates the impact of four CEO compensation components managerial remuneration, bonuses, medical allowances, and rent allowances on firm performance among PSX-100 non-financial companies (2020–2024), using Return on Assets (ROA) as the performance proxy. A fixed effects panel regression (Hausman χ² = 19.63, p = 0.012), with robust standard errors correcting for heteroskedasticity and autocorrelation, was used to estimate each component's effect on ROA (mean = 0.065, SD = 0.089). Results show bonuses have the strongest positive effect on performance (β = 0.096, p < 0.01), followed by managerial remuneration (β = 0.312, p < 0.05), while medical allowances (β = 0.0018, p > 0.10) and rent allowances (β = -0.0012, p > 0.10) show no significant effect. These findings confirm that performance-linked and fixed-pay components meaningfully influence profitability, while non-monetary benefits do not. The study recommends that boards prioritize performance-based bonuses and calibrated fixed pay in CEO packages, while regulators strengthen disclosure standards around compensation composition.