Shareholder Rights, Boards, and CEO Compensation
Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
March 12, 2008
Charles A. Dice Center Working Paper No. 2008-5 and Fisher College of Business Working Paper No. 2008-03-004
Review of Finance, Forthcoming
I analyze the role of executive compensation in corporate governance. As proxies for corporate governance, I use board size, board independence, CEO-chair duality, institutional ownership concentration, CEO tenure, and an index of shareholder rights. The results from a broad cross-section of large U.S. public firms are inconsistent with recent claims that entrenched managers design their own compensation contracts. The interactions of the corporate governance mechanisms with total pay-for-performance and excess compensation can be explained by governance substitution. If a firm has generally weaker governance, the compensation contract helps better align the interests of shareholders and the CEO.
Number of Pages in PDF File: 48
Keywords: Compensation, Corporate Governance, Governance Incentive Substitution
JEL Classification: G32, G34, J33
Date posted: May 8, 2003 ; Last revised: August 7, 2008
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