Do Executive Incentives Drive Performance? A Study of Manufacturing Firms in Indonesian
Keywords:
Executive compensation, Firm performance, Agency theory, Financial incentives, Manufacturing
Abstract
The growing disparity between executive compensation (EXECOMP) and employee wages, along with increasing concerns over the effectiveness of incentive structures, highlights the urgency of understanding how executive pay influences firm performance (FP). This study investigates whether well-aligned compensation schemes can effectively motivate executives and enhance firm value, particularly under conditions of public scrutiny and regulatory pressure. Grounded in agency theory, the study analyzes 264 observations from manufacturing firms listed on the Indonesia Stock Exchange (IDX) between 2016 and 2022. Using Ordinary Least Squares (OLS) regression analysis, the results reveal a statistically significant positive relationship between EXECOMP and FP. These findings underscore the importance of performance-based incentives in driving executive behavior and improving financial outcomes. The study contributes to the literature by offering updated empirical evidence from an emerging market context, reinforcing the strategic role of EXECOMP in promoting sustainable corporate growth.
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References
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Yunita Riaswati, Suherman, & Umi Mardiyati. (2021). The Effect of Institutional Ownership and Executive Compensation on Company Performance (Study on Food and Beverage Industry Listed in Indonesia Stock Exchange From 2014-2018). Jurnal Dinamika Manajemen Dan Bisnis, 4(1), 61–77. https://doi.org/10.21009/jdmb.04.1.3
Zoghlami, F. (2021). Does CEO Compensation Matter in Boosting Firm Performance? Evidence from Listed French Firms. Managerial and Decision Economics, 42(1), 143–155. https://doi.org/10.1002/mde.3219
Zulaecha, H. E. (2017). Pengaruh Manajemen Persediaan, Kompensasi Eksekutif, Intellectual Capital Dan Leverage Terhadap Kinerja Perusahaan. Fundamental Management Journal, 2(1), 1–15.
Aggarwal, R., Jindal, V., & Seth, R. (2019). Board Diversity and Firm Performance: The Role of Business Group Affiliation. International Business Review, 28(6). https://doi.org/10.1016/j.ibusrev.2019.101600
Ajagun, O. P., Jolade, &, & Akintimehin, G. (2025). Effect of Equity Financing on Return on Asset of Deposit Money Banks in Nigeria. 13(1), 435–442. https://doi.org/10.5281/zenodo.16953267
Angelia, F., & Bangun, N. (2023). Pengaruh Executive Compensation, Managerial Ownership, dan …. V(2), 580–591.
Collins, S. P., Storrow, A., Liu, D., Jenkins, C. A., Miller, K. F., Kampe, C., & Butler, J. (2021). How Has CEO Turnover Changed ? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs. 167–186.
Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics, 51(3), 371–406. https://doi.org/10.1016/s0304-405x(98)00058-0
Eisenhardt, K. (1989). Agency Theory : An Assessment and Review. Academy of Management Review, 14(1), 57–74.
Frye, M. B. (2004). Equity-Based Compensation for Employees : Firm Performance and Determinants. The Journal of Financial Research, XXVII(1), 31–54.
Gabaix, X., & Landier, A. (2008). Why Has CEO Pay Increased So Much? Quarterly Journal of Economics, 123(1), 49–100. https://doi.org/10.1162/qjec.2008.123.1.49
Han, L., & Yu, H. H. (2023). An Empirical Study from Chinese Energy Firms on the Relationship between Executive Compensation and Corporate Performance. Nurture, 17(3), 378–393. https://doi.org/10.55951/nurture.v17i3.356
Jensen, M., & Meckling, W. (1976). Theory of The Firm: Managerial Behavior, Agency Costs, and Ownership Structure. The Economic Nature of the Firm: A Reader, Third Edition, 283–303. https://doi.org/10.1017/CBO9780511817410.023
Kato, T., & Long, C. X. (2016). Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.555794
Khoiruddin, M. (2017). Upaya Meminimumkan Agency Promblen dengan Menggunakan Konsep Islam tentang Perusahaan. 1(Ii), 73–98.
Maharani, W. P., & Utami, E. R. (2019). the Influence of Institutional Ownership Towards Executive Compensation Considered By the Performance of the Company. Jurnal Reviu Akuntansi Dan Keuangan, 9(1), 85–96. https://doi.org/10.22219/jrak.v9i1.7879
Mardiyati, U., Devi, M. S., & Suherman. (2013). Pengaruh Kinerja Perusahaan, Corporate Governance , dan Shareholder Payout Terhadap Kompensasi Eksekutif (The Impact of firms performance, Corporate governance, and shareholder payout on executives compensation). Jurnal Riset Manajemen Sains Indonesia (JRMSI), 4(2), 167–183. https://journal.unj.ac.id/unj/index.php/jrmsi/article/view/784
Meyer, M., Milgrom, P., & Roberts, J. (1992). Organizational Prospects, Influence Costs, and Ownership Changes. Journal of Economics & Management Strategy, 1(1).
Nastiti, K. D., & Hartini, S. (2023). Kinerja Perusahaan, Kepemilikan Keluarga, Dan Kompensasi Eksekutif. Journal of Economic, Bussines and Accounting (COSTING), 6(2), 1547–1554. https://doi.org/10.31539/costing.v6i2.5510
Omoregie, O. K., & Kelikume, I. (2019). Executive Compensation and Insurance Sector Performance: Evidence From Nigeria. International Journal of Economics and Financial Issues, 51(2), 277–283. https://doi.org/10.32479/ijefi.7577
Park, W., & Byun, C. G. (2021). Effect of SME’s Managerial Ability and Executive Compensation on Firm Value. Sustainability (Switzerland), 13(21), 1–16. https://doi.org/10.3390/su132111828
Razasyah, W. (2017). Pengaruh Kompensasi Eksekutif Dan Ukuran Perusahaan Pada Kinerja Keuangan Perusahaan. Perbanas Institutional Repository, 1–13.
Runkat, C. A., & Ismiyanti, F. (2024). Pengaruh Kompensasi Eksekutif Dan Corporate Governance Terhadap Nilai Perusahaan Pada Perusahaan Keuangan Di BEI Tahun 2018-2023. Innovative: Journal Of Social Science Research, 4(5), 235–248. https://j-innovative.org/index.php/Innovative/article/view/14951
Suzan, L., & Khadrinur, H. (2023). The Effect of Intellectual Capital and Executive Compensation on Financial Performance. Jhss (Journal of Humanities and Social Studies), 7(1), 040–046. https://doi.org/10.33751/jhss.v7i1.7102
Tosi, H. L., Werner, S., Katz, J. P., & Gomez-Mejia, L. R. (2000). How Much Does Performance Matter? A Meta-Analysis of CEO Pay Studies. Journal of Management, 26(2), 301–339. https://doi.org/10.1016/s0149-2063(99)00047-1
Tran, T., & Thu, M. (2023). Corporate Governance, Firm Characteristics and Firm Performance: Empirical Evidence from Vietnam. Journal of World Economy: Transformations & Transitions, April. https://doi.org/10.52459/jowett36250423
Yunita Riaswati, Suherman, & Umi Mardiyati. (2021). The Effect of Institutional Ownership and Executive Compensation on Company Performance (Study on Food and Beverage Industry Listed in Indonesia Stock Exchange From 2014-2018). Jurnal Dinamika Manajemen Dan Bisnis, 4(1), 61–77. https://doi.org/10.21009/jdmb.04.1.3
Zoghlami, F. (2021). Does CEO Compensation Matter in Boosting Firm Performance? Evidence from Listed French Firms. Managerial and Decision Economics, 42(1), 143–155. https://doi.org/10.1002/mde.3219
Zulaecha, H. E. (2017). Pengaruh Manajemen Persediaan, Kompensasi Eksekutif, Intellectual Capital Dan Leverage Terhadap Kinerja Perusahaan. Fundamental Management Journal, 2(1), 1–15.
Published
2025-09-04
How to Cite
Chandra, B., Mardianto, M., Krisyadi, R., & Christina, C. (2025, September 4). Do Executive Incentives Drive Performance? A Study of Manufacturing Firms in Indonesian. Journal of Economic, Management, Accounting and Technology, 9(1), 83-95. https://doi.org/https://doi.org/10.32500/jematech.v9i1.10253
Section
Articles
