Because of its explosion in recent decades, CEO compensation has drawn considerable
attention from media, trade unions, investors and politicians (Murphy 1999). Further, the
need to understand the magnitude and structure of CEO compensation has heightened in the
aftermath of the major corporate collapses of 2001 in the US, Australia and the European
Union. CEO pays of many of the collapsed firms grabbed headline news and were the
subject of comments from politicians. The corporate collapses of 2001 also highlighted the
need for good corporate governance and financial reporting quality. Although the CEO plays
a key strategic role in the firm, the role of CEO quality has been mostly ignored in research
on financial reporting quality, corporate governance and CEO compensation.1 This paper
investigates the role of CEO quality in firm performance, corporate governance and CEO
compensation in an Australian setting.