1. CEO Compensation and Concurrent Executive Employment of Outside Directors: A Panel Data Analysis of S&P 1500 firms
- Author
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KIM, YOUNG-CHUL and SONG, SU JIN
- Subjects
CEO Compensation ,DirectorAgency Problem ,H825Outside Directors ,Board of Directors ,Corporate Governance ,Social Sciences ,Industries. Land use. Labor ,HD28-9999 ,Economic theory. Demography ,HB1-3840 - Abstract
In many advanced countries, most outside directors are executives, active or retired, at other firms; in other words, executives from other companies make executive compensation decisions. This situation may hinder the board of directors (BOD) in their efforts to optimize executive compensation levels objectively. Using a panel data analysis of the S&P 1500 companies, we provide supplemental evidence of whether, and to what extent, the concurrent executive employment of outside directors distorts the executive pay decisions at a given company. An unbiased fixed-effect estimation confirms that a $1.00 increase in CEO pay at outside directors’ primary companies results in an approximate increase of $0.22 in CEO pay at the given company. From a policy perspective, this added agency problem — caused by the BOD and not by management— is noted as difficult to control; although a firm may establish board independence, the inherent concurrent employment of directors on a board continues to exist.
- Published
- 2016
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