Is Board Compensation Excessive?

Keywords

Board monitoring; Director compensation

Abstract

We develop a model to predict expected or normal director compensation. Based on this, we then calculate whether directors of corporate boards are over- or undercompensated. On average, we find greater evidence of over- rather than undercompensation. For companies that overpay, the average excess compensation is greater than $60,000 per director, while directors that are underpaid receive about $33,000 less than predicted. Excess compensation declines over our sample period, which may be consistent with increased director workloads as well as increased scrutiny. We also find that overcompensated directors exacerbate agency problems and lead to reduced CEO turnover sensitivity to performance and a decrease in CEO pay-for-performance sensitivity. Thus, director excess compensation may be a sign of board entrenchment where overcompensated directors are not necessarily focused on protecting shareholder interests.

Publication Date

8-1-2017

Publication Title

Journal of Corporate Finance

Volume

45

Number of Pages

566-585

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jcorpfin.2017.06.001

Socpus ID

85020776675 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85020776675

This document is currently not available here.

Share

COinS