Download This Article

Bertrand Lemennicier ORCID logo, Joël Hermet, Duraisamy Palanigounder ORCID logo


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.


This study analyses pay-performance relationship and pay structure of executives and tests whether the pay structure of CEOs differs across firms in the defense and non-defense sector using econometric methodology. The empirical results based on ordinary least squares, Probit and Tobit methods show that on an average, executives in the defense firms earn more than their counterparts in the non-defense sector. However, when we control for governance structure, firm performance and other characteristics, the difference in executives’ remuneration vanishes. The important determinants of executive pay are the legal system, firm performance measured by Return on Assets (ROA), whether the CEO is also Chairman of the board, and size of the firm. The estimates of the determinants of restricted stock awards showed that firm performance, governance and other characteristics significantly influence the likelihood of obtaining restricted stock awards and also the value of the stock award.

Keywords: Corporate Governance, Executive Compensation, Firm Performance, Defense Industry

Acknowledgements: This work is the outcome of a study commissioned and funded by the Delegation for Strategic Affairs of the French Ministry of Defense. It is managed by the Secretariat General for Administration (Economic Observatory of Defense), with the assistance of the Directorate General for Armaments. We thank APTUS society, represented by Daniel Coudroyer, for his moral and financial support, Sylvain Moura, Marc Antoine Kleinpeter Observatory of Defense (OED) of the Ministry of Defense for their material and intellectual inputs and Ingrid Deleuze the DGA for their valuable comments on the project report. The authors wish to thank Enrico Colombatto of ICER, Giovanni Ramello and participants of the doctoral seminar of the IEL (Institutions, Economics and Law) of the Collegio Carlo Alberto in Turin for their comments and suggestions.

JEL Classification: M120, L210, G30, G34

Received: 22.03.2019
Accepted: 22.05.2019
Published online: 23.05.2019

How to cite this paper: Lemennicier, B., Hermet, J., & Palanigounder, D. (2019). Corporate governance, firm performance and executive pay: A comparison of defense and non-defense firms. Corporate Governance and Sustainability Review, 3(2), 8-17.