1.
AGRITECH LIMITED
• Board Size: 7 members
• Board Independence: 60%
• CEO Duality: No (CEO ≠ Board Chair)
• Audit Committee: 5 members
• Audit Firm: Grant Thornton
Interpretation: Agritech has a moderately sized board with good independence. The CEO does
not also chair the board, which is good for governance. The audit committee is strong with 5
members, and an international audit firm (Grant Thornton) is used.
2. ARIF HABIB CORP
• Board Size: 8 members
• Board Independence: 62%
• CEO Duality: No
• Audit Committee: 4 members
• Audit Firm: A. F. Ferguson & Co.
Interpretation: Arif Habib Corp maintains a balanced board with over 60% independence.
Governance structure is decent, and the use of a reputable audit firm ensures transparency.
3. ENGRO FERTILIZER
• Board Size: 7 members
• Board Independence: 42%
• CEO Duality: No
• Audit Committee: 4 members
• Audit Firm: A. F. Ferguson & Co.
Interpretation: Engro Fertilizer’s board has relatively low independence (below 50%), which may
raise governance concerns. However, audit practices are stable and CEO power is separated from
the board chair role.
4. FATIMA FERTILIZER
• Board Size: 7 members
• Board Independence: 0%
• CEO Duality: No
• Audit Committee: 4 members
• Audit Firm: Deloitte Yousaf Adil
Interpretation: Fatima Fertilizer has no independent directors, which is a major governance
weakness. However, their audit committee is in place and they are audited by a well-known
international firm.
5. FAUJI FERTILIZER
• Board Size: 15 members
• Board Independence: 80%
• CEO Duality: No
• Audit Committee: 5 members
• Audit Firm: A. F. Ferguson & Co.
Interpretation: Fauji Fertilizer has a large board with excellent independence and strong audit
oversight. This reflects a strong governance structure overall.
LAST PAPER SUMMARY
Main Purpose of the Study
The study looks at how firm performance and corporate governance (like board structure,
ownership type) affect how much CEOs are paid in Pakistan. This is important because in
Pakistan, many companies are controlled by families or big shareholders, and the legal
system is weak.
“Firm Performance, Corporate Governance, and Executive Compensation in
Pakistan” by Sheikh, Shah & Akbar (2017).
🔹 1. Introduction
• The paper studies how CEO pay is affected by:
o Firm performance
o Corporate governance
o Ownership type (family vs. institutional)
• Focus: Pakistan, an emerging market where:
o CEOs are often more powerful than the board.
o Family ownership and poor legal protections are common.
🔹 2. Why This Study Matters
• In Pakistan, corporate governance is weak.
• Family and large shareholders often dominate companies.
• Pakistan provides a unique case due to:
o High ownership concentration
o Weak investor protections
o Mandatory disclosure of CEO pay
• Western governance theories may not apply well here.
🔹 3. Theoretical Background
There are two main theories discussed:
a. Agency Theory
• Boards should control CEO behavior.
• CEO pay should be based on firm performance.
• Good governance = low risk of CEO abuse.
b. Managerial Power Theory (MPT)
• Powerful CEOs can manipulate their own pay.
• Weak boards = CEOs may get overpaid.
• MPT is more likely to apply in weak governance environments like Pakistan.
🔹 4. Research Questions
1. Does firm performance affect CEO pay?
2. Do ownership types (family or concentrated) influence CEO compensation?
3. Does board structure (size, independence, CEO duality) matter?
🔹 5. Hypotheses (Simple Version)
Code Hypothesis (H)
H1 Firm performance does NOT influence CEO compensation.
H2a Ownership concentration increases CEO compensation.
H2b CEO pay is higher in family firms than non-family ones.
H3 Board size has no effect on CEO compensation.
H4 Board independence has no effect on CEO compensation.
H5 If CEO is also the chairman (CEO duality), then CEO pay is higher.
🔹 6. Data
• Sample: 225 non-financial Pakistani firms (2005–2012)
• Data sources: Company annual reports, SBP, KSE
• Final dataset: 1,508 firm-year observations
• Variables include:
o CEO pay (cash and total)
o Profitability (ROA)
o Market performance (stock return)
o Board size and independence
o CEO duality
o Ownership types
o Firm size, risk, age
🔹 7. Methods
• Used three models:
1. Pooled OLS
2. Fixed Effects
3. Dynamic Panel (GMM) – most advanced, accounts for time trends and
internal effects
• Dynamic model captures pay persistence (past pay affects current pay).
🔹 8. Key Results
Effect on CEO
Factor Notes
Pay
ROA (profit) Positive Strongly linked to CEO pay
Market returns No effect Unreliable due to market volatility
Strong Pay is persistent—past pay heavily influences
Past CEO pay
positive future pay
May indicate collusion between CEO and
Ownership concentration Positive
dominant shareholder
In some models, lowers pay, but results not
Family ownership Mixed
consistent
Effect on CEO
Factor Notes
Pay
Board size No effect Not influential in Pakistan
Independent directors often lack real
Board independence No effect
independence
CEO duality Opposite of theory; may reflect regulatory
Negative
(CEO=Chairman) changes
Institutional ownership Positive Institutions don’t seem to monitor CEO pay well
Belonging to a business group makes no
Group firm status No effect
difference
Firm size Positive Bigger firms pay CEOs more
Firm risk No effect Surprisingly doesn’t lead to higher CEO pay
Market-to-book ratio No effect Growth opportunities not tied to CEO pay
Firm age Positive Older firms tend to pay more
CEO change Mixed New CEOs sometimes get lower pay
🔹 9. Other Insights
• CEO pay increases even during crisis years, as long as accounting profit stays
positive.
• Boards use past pay as a reference ("anchor") to set future compensation.
• Corporate boards in Pakistan are often weak and influenced by owners.
• Legal enforcement is poor, so boards can’t fully control CEOs.
🔹 10. Conclusions
• CEO compensation in Pakistan is not fully aligned with performance or governance
principles.
• Pay is more influenced by accounting profits and past salaries.
• Corporate governance (like board independence) doesn’t work effectively.
• Powerful shareholders may collude with CEOs, raising concerns for minority
investors.
🔹 11. Policy Implications
• Need for stronger board independence.
• Improve legal protections for investors.
• More transparency needed on how CEO pay is decided.
• Code of Corporate Governance should be strictly enforced
