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
Copyright Status
Unknown
Socpus ID
85020776675 (Scopus)
Source API URL
https://api.elsevier.com/content/abstract/scopus_id/85020776675
STARS Citation
Dah, Mustafa A. and Frye, Melissa B., "Is Board Compensation Excessive?" (2017). Scopus Export 2015-2019. 6010.
https://stars.library.ucf.edu/scopus2015/6010