The relationship between executive compensation and stock prices for companies quoted at the Nairobi Stock Exchange

Abstract

This paper has sought to establish whether there is a relationship between executive compensation and share prices. It measures executive compensation using directors' fees and combines other variables namely: performance; size; dividends per share and inflation. The model is applied to companies listed at the Nairobi Stock Exchange.

The model used provides empirical evidence that a direct relationship exists between share prices and executive compensation. It also confirms that indicate that, executive pay, size, performance, Dividends per share are significant determinants of stock prices since each one of them has a significance level of less than 0.05 or a t-value of greater than 2 while Inflation was not identified as a significant determinant. Overall results indicate that executive pay has a direct negative impact on the firm share prices.