Board Monitoring, Consulting, and Reward Structures
44 Pages Posted: 25 Jul 2007 Last revised: 26 Jan 2018
Date Written: February 3, 2010
In general, board of directors’ compensation consists of stock option grants, equity stakes, meeting fees, and cash retainers. In this paper, we examine the short-term and long-term incentive effects of equity-based compensation on the board’s corporate governance (contracting and monitoring) and advisory (consulting) roles. We show that without short-term incentives, the board cannot effectively fulfill both roles. Providing the board with long-term incentives does help the advisory role, but, perhaps surprisingly, does not help with respect to the corporate governance role.
Keywords: board of directors, corporate governance, consulting, monitoring
JEL Classification: D80, G34, M40, J33
Suggested Citation: Suggested Citation