Do Directors’ Remuneration and Remuneration Committees of the Board affect Bank’s Performance: Application of GMM model?

Abstract

Abstract This paper assessed the effect of directors' remuneration and the remuneration committee on a bank's performance. The study used 200 observations from 20 licensed banks in Ghana from 2012 to 2023. The study employed dynamic System Generalized Method of Moments as the main analytical estimator using Stata 16.0 software. The study revealed that directors' remuneration, audit committee independence, and the remuneration committee are positively and significantly related to the bank's performance. Furthermore, the study revealed that banks with a remuneration committee as well as an independent audit committee tend to enhance the bank's performance because remuneration and audit committees tend to align directors' remuneration with the bank's performance. The findings highlight the importance of setting up a remuneration committee as well as strengthening its functions. The first recommendation for this study is for the board to strengthen the remuneration committee since it affects the bank's performance positively. Lastly, the study recommends that the remuneration committee should be strengthened to align directors' remuneration with the bank's performance metrics, such as revenue growth, profitability of the bank, and shareholders' returns. Keywords: Audit committee independence; Bank’s performance; Directors’ remuneration; Ghana; Optimal contracting contract.