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Does location influence executive compensation? Evidence from Canadian SMEs

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Abstract

We examine the impact of geographic location on the level and structure of executive compensation of small and medium enterprises (SMEs) in Canada, using a panel data sample between 2008 and 2011. Our results show that SMEs pay a higher price for talent by paying a large proportion (71%) of compensation as guaranteed cash pay to their executives. We also report a strong influence of location on compensation structure. Specifically, rural firms pay 13% more incentive based equity pay to their executives compared to their size matched urban counterparts. However, there is no difference between the total compensation for managers of rural and urban firms after controlling for the cost of living index. In cross-sectional tests, we observe that total compensation is positively related to CEO/Chair duality and family ownership but is not related to management quality. In addition, we find that rural firms display a higher pay-performance sensitivity.

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Notes

  1. Extant literature also shows that management compensation contracts can have a significant impact on the long run operating performance of firms. For example, Datta et al. (2001) show that managers whose compensation is more equity-based tend to make value maximizing acquisitions and these firms do better than all acquirers in general.

  2. Loughran (2008) also finds that rural firms are 1.5% less likely to conduct seasoned equity offerings than their urban counterparts, and when they do they tend to use lower quality underwriters than similar urban firms.

  3. We thank Kenneth French’s online data library for providing us with the Fama–French industry definitions.

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Acknowledgements

We acknowledge and thank the Desjardins Centre for Innovation in Business Finance at Concordia University for providing financial support for this research. We also thank participants at the 2013 Academy of Finance Conference in Chicago and the 2015 India Finance Conference in Kolkata, India, for their valuable feedback on earlier versions of this paper. Hossain thanks Memorial University’s Vice President Research for providing funding through SSHRC-VP Grant Program (Account Nos. 211201 and 209451). He also thanks Faculty of Business Administration at Memorial University for providing funding through SEED Grants (Account No. 209392). Finally, we thank Nadim Nazha for his excellent research assistance with assembling the data from proxy statements. All remaining errors are our own.

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Authors and Affiliations

  1. John Molson School of Business, Concordia University, Montreal, QC, H3G 1M8, Canada

    Harjeet S. Bhabra

  2. Faculty of Business Administration, Memorial University of Newfoundland, St. John’s, NL, A1B 3X5, Canada

    Ashrafee T. Hossain

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  1. Harjeet S. Bhabra
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  2. Ashrafee T. Hossain
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Correspondence to Ashrafee T. Hossain.

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Bhabra, H.S., Hossain, A.T. Does location influence executive compensation? Evidence from Canadian SMEs. J Manag Gov 22, 89–109 (2018). https://doi.org/10.1007/s10997-017-9377-5

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