Shareholder Rights, Boards, and CEO Compensation

Posted: 17 Jan 2009

See all articles by Rüdiger Fahlenbrach

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2009


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.

Keywords: G32, G34, J33

Suggested Citation

Fahlenbrach, Rüdiger, Shareholder Rights, Boards, and CEO Compensation (January 2009). Review of Finance, Vol. 13, Issue 1, pp. 81-113, 2009, Available at SSRN: or

Rüdiger Fahlenbrach (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

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Swiss Finance Institute

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European Corporate Governance Institute (ECGI) ( email )

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