Dividend Payout and Executive Compensation: Evidence from Islamic Banks

This paper investigates the relationship between dividend payouts and executive compensation in Islamic banks. While many studies have identified a negative dividend-compensation relationship in conventional banks, no such studies exist for the Islamic banking industry. Utilizing the model proposed by Bhattacharya et al. [2], the paper employs Tobit regression on data from 44 Islamic banks spanning the period 2010–2021. The model incorporates the impact of the COVID-19 pandemic on dividend policies, given its substantial influence on the banking sector. The results reveal that higher executive compensation correlates with lower payouts (higher retention), suggesting that competitive compensation packages attract and retain top talent, incentivizing executives to invest in positive Net Present Value (NPV) projects while distributing lower dividends.