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Reputation Penalties for Poor Monitoring of Executive Pay: Evidence from Option BackdatingYonca ErtimurUniversity of Colorado at Boulder - Department of Accounting Fabrizio FerriColumbia Business School - Accounting, Business Law & Taxation David A. MaberUniversity of Michigan - Ross School of Business June 22, 2011 Journal of Financial Economics (JFE), Forthcoming 5th Annual Conference on Empirical Legal Studies Paper AAA 2011 Management Accounting Section (MAS) Meeting Paper Abstract: We study whether outside directors are held accountable for poor monitoring of executive compensation by examining the reputation penalties to directors of firms involved in the option backdating (BD) scandal of 2006-2007. We find that at firms involved in BD, significant penalties accrued to compensation committee members (particularly those who served during the BD period) both in terms of votes withheld when up for election, and in terms of turnover, especially in more severe cases of BD. However, directors of BD firms did not suffer similar penalties at non-BD firms, raising the question of whether reputation penalties for poor oversight of executive pay are large enough to affect the ex ante incentives of directors.
Number of Pages in PDF File: 67 Keywords: Option Backdating, Director Labor Market, Shareholder Voting, Director Turnover, CEO Pay Accepted Paper SeriesDate posted: July 10, 2010 ; Last revised: September 6, 2011Suggested CitationContact Information
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