CEO Compensation and Board Structure Revisited

Abstract

Chhaochharia and Grinstein (2009) estimate that CEO pay decreases by 17% more in firms whose boards were not compliant with the recent NYSE/NASDAQ independence requirements than in firms that were compliant. We document that 65% of the magnitude is driven by a single outlier. All our attempts to improve the estimate – by (i) correcting classification errors in board compliance; (ii) adding firms to the sample that satisfy the sample selection criteria; and (iii) differentiating by the presence of substitute governance mechanisms – further weaken the result. We conclude that board independence has no effect on the level of CEO pay.

Keywords: CEO pay, executive compensation, managerial power, board independence, board structure, Sarbanes-Oxley, NYSE, Nasdaq

JEL Classification: G34, G38, J33, J38