Compensation of Outside Directors: An Empirical Analysis of Economic Determinants
Stephen H. Bryan
Wake Forest University
Seoul National University - College of Business Administration
New York University (NYU) - Department of Accounting, Taxation & Business Law
Steven B. Lilien
City University of New York (CUNY) - Stan Ross Department of Accountancy
Little is known about the economic environments and determinants of the compensation arrangements for outside board members. As delegated monitors of corporate management, board members act as shareholders' agents. Thus, a potential for misaligned interests exists, requiring in turn incentive arrangements that are incentive-compatible and individually rational. We study the economic determinants of both the levels and mix of compensation for outside board members. We also examine the effects of the existence of a director pension plan on the relation between director compensation and the hypothesized determinants. In sum, and contrary to criticism that the board of directors is often a passive, ineffective entity that dislikes conflict with incumbent management, we find that board compensation is structured to mitigate agency problems inherent in firms whose management control is separated from ownership.
Number of Pages in PDF File: 42
Keywords: Director compensation, outside directors, director pension plan, incentive contracts, agency theory
JEL Classification: J33, D82, D23, G30, G32working papers series
Date posted: October 28, 2000
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