Executive pay and firm performance in the Philippines Angelo A. Unite a , Michael J. Sullivan b, ⁎ , Jeffrey Brookman c , Mary Anne Majadillas d , Angelo Taningco a a De La Salle University, Manila, Philippines b University of Nevada, Las Vegas, United States c Idaho State University, United States d Florida State University, United States Received 7 December 2005; accepted 28 December 2006 Available online 17 November 2007 Abstract This paper provides the first systematic evidence on the nature of the relation between executive compensation and firm performance in the Philippines. Comparable to studies of Japan, Korea, and China, we find a positive relation between executive compensation and performance in the Philippines for those firms not affiliated to a corporate group, but that this relation does not hold for affiliated firms. We conclude that the substantial portion of the Philippine economy that is under the control of group networks incentivize managers in ways other than through use of pay–performance schemes. © 2007 Elsevier B.V. All rights reserved. JEL classification: G15; G30; J33; O53 Keywords: Executive compensation; Corporate governance; Emerging markets 1. Introduction Based on agency theory it has been reasoned that the interests of managers and shareholders can be aligned by linking manager's compensation to firm performance (Murphy, 1985, 1999). This relation between executive compensation and firm performance has been studied extensively for firms domiciled in the United States (see Murphy, 1999). However, outside of the United States, investigation of this pay–performance relation has been limited to countries with larger or more mature economies, due in large part to data constraints. For example, countries studied in Available online at www.sciencedirect.com Pacific-Basin Finance Journal 16 (2008) 606 – 623 www.elsevier.com/locate/pacfin ⁎ Corresponding author. University of Nevada, Las Vegas; Las Vegas, NV 89154-6008, United States. Tel.: +1 702 895 4669; fax: +1 702 895 4650. E-mail address: michael.sullivan@unlv.edu (M.J. Sullivan). 0927-538X/$ - see front matter © 2007 Elsevier B.V. All rights reserved. doi:10.1016/j.pacfin.2006.12.002