Compensation of Outside Directors: An Empirical Analysis of Economic Determinants

42 Pages Posted: 8 Oct 2008

See all articles by Stephen H. Bryan

Stephen H. Bryan

Wake Forest University

Lee-Seok Hwang

Seoul National University - College of Business Administration

April Klein

New York University (NYU) - Department of Accounting

Steven Lilien

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: September 2000

Abstract

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.

Keywords: Director compensation, outside directors, director pension plan, incentive contracts, agency theory

Suggested Citation

Bryan, Stephen H. and Hwang, Lee-Seok and Klein, April and Lilien, Steven, Compensation of Outside Directors: An Empirical Analysis of Economic Determinants (September 2000). NYU Working Paper No. APRIL KLEIN-4. Available at SSRN: https://ssrn.com/abstract=1280674

Stephen H. Bryan

Wake Forest University ( email )

7659 Reynolda Station
Winston-Salem, NC 27106
United States
336-758-3671 (Phone)

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

April Klein

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Steven Lilien

affiliation not provided to SSRN

No Address Available

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