Executive compensation, board of directors, reputation conerns, government policy


In my first essay, I find a statistically and economically significant director-specific component in CEO pay following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). In the cross-section of firms, directors that award relatively higher (lower) CEO pay in one firm also award relatively higher (lower) CEO pay in other firms of whose boards they are members during the year. Based on my estimates, the director-specific component is responsible for around ±3.5% of total CEO pay or around ±$230,000 per CEO-year on average. In addition to affecting CEO pay levels, the director-specific component also has a significant effect on the changes and the composition of CEO pay, thus affecting CEO incentives. I pursue two potential explanations for our findings—changes in board composition and changes in director behavior after SOX. I do not find evidence that the director-specific component in CEO pay is due to changes in board composition. Instead, I find evidence that the director-specific component in CEO pay is due to changes in director behavior related to the additional risks and employment concerns imposed on directors after SOX. My findings are consistent with the view that SOX discourages directors from taking risks when awarding CEO pay and so directors award CEO pay that they can more easily justify through direct experiences in other firms. These findings have wide implications about the importance of directors in setting CEO pay, the existence of agency problems within the board, and the consequences of regulation in general and SOX in particular. My second essay concerns the compensation of directors themselves. I find that institutional ownership is positively related to the level of director compensation and the proportion of equity based compensation that directors receive. These results are consistent with the interpretation that institutions prefer stronger links between firm performance and board compensation and are willing to pay higher levels of compensation for better governance. I also investigate the difference between the effects of active versus passive institutional investment and find that active institutions appear to have a larger economic impact on director compensation. However, I do not find a statistical difference between the effects of active and passive ownership. My third essay studies the strategies that firms follow when apportioning incentive compensation within the board of directors. Firms tend to preserve the structure of director incentives over time so that firms using equal (variable) incentives in one year are more likely to use equal (variable) incentives in the following year. I further examine whether the structure of director incentives within the board affects acquirer performance in corporate acquisitions. I find that the five-day announcement returns of firms awarding equal director incentives are around 1% higher than the returns of firms that award variable director incentives within the board. These results are robust to standard controls related to acquirer returns, to different lengths of the announcement window, and to alternative incentive strategy classification schemes. Overall, my findings are consistent with the idea that director incentives play a significant role in corporate performance and with the idea that equal director incentives dominate variable incentives in circumstances where the success of the outcome is likely to depend on the board as a whole.


If this is your thesis or dissertation, and want to learn how to access it or for more information about readership statistics, contact us at

Graduation Date





Gatchev, Vladimir


Doctor of Philosophy (Ph.D.)


College of Business Administration

Degree Program

Business Administration; Finance








Release Date

May 2015

Length of Campus-only Access


Access Status

Doctoral Dissertation (Open Access)