Shareholders Wealth and Top Executives Compensation: A New Approach to Test Effectiveness of Executive Compensation

Investors tend to know how successful the managers are in applying their wealth. One of the most important objectives of the companies is value creation and wealth increase for shareholders and the performance appraisal systems are useful tools for evaluating their success in obtaining the objectives. Some researches indicate that shareholders wealth is influenced by the management incentives (e.g., executive compensation & managerial stock). This study examines the relation between Top executives compensation and shareholder value added. To do this, data from 81 firms listed in TSE from 2006 to 2011) has been studied. The results show that there is no significant relation between top executives compensation and shareholder value added (changes in market capitalization, dividend and cumulative abnormal stock return). Thus it can be concluded that top executive compensation of Iranian firms during their tenure is not an effective factor.