Director Optimal Pay against Fat Cats in Taiwan

Abstract

Due to the overcompensation phenomenon that exists in Taiwan, the "fat cat" issue continues to persist; therefore, vast reforms in regards to director compensation have been prompted in recent years. This investigation assessed 665 Taiwanese firms listed on the Taiwanese Stock exchange over a 10-year period (2002-2011). The main purpose is to test whether there is an optimal level of director compensation, which maximizes firm value. This study adopts Tobin's Q as the proxy for firm value and finds that director compensation between 0.0283 percent and 2.3077 percent is an optimal level to maximize firm value. These results show that when control-affiliated directors have incentives to increase firm value, they serve as reliable monitors due to their individual financial gains.

Keywords: Nonlinear, Firm value, Fat cat, Director  compensation, Optimal level

JEL classification: G31, G32, G34, G35, G38