CEO Presence on the Compensation Committee: A Puzzle
13 Pages Posted: 1 Aug 2010 Last revised: 8 Aug 2015
Date Written: July 29, 2010
Conventional wisdom suggests that CEO membership of the compensation committee is an open invitation to rent extraction by self-serving executives. However, using data from New Zealand – where CEO compensation committee membership was rel- atively common until quite recently – we ﬁnd that annual pay increments for CEOs with this apparent advantage averaged six percentage points less than those enjoyed by other CEOs during the 1997–2005 period. After controlling for variation in ﬁrm performance, the difference is a still-sizeable four percentage points. This puzzling result cannot be explained by risk-return tradeoff considerations, interaction with other governance variables, selection bias, or variable mis-measurement.
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