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CEO Compensation and Board Structure Revisited – Addendum

9 Pages Posted: 4 Jun 2012 Last revised: 20 Mar 2013

Katherine Guthrie

College of William and Mary - Mason School of Business

Jan Sokolowsky

Independent

Kam-Ming Wan

Hong Kong Polytechnic University

Date Written: March 27, 2012

Abstract

Using Chhaochharia’s and Grinstein’s (JF, 2009) data and methodology, Guthrie, Sokolowsky, and Wan (JF, 2010) document that compensation committee independence leads to an increase in executive pay, and that the increase is concentrated in firms with powerful monitors. These findings stand in sharp contrast to the prediction of the managerial power hypothesis that director independence effectively curbs rent extraction in the form of excessive CEO pay. While it is tempting to reject the managerial power hypothesis, the evidence alternatively calls into question the effectiveness of director independence in corporate governance or the importance of reducing CEO pay to directors. In this addendum, we discuss these two possibilities.

Keywords: executive compensation, CEO pay, board structure, board independence, corporate governance, compensation committee, Sarbanes-Oxley Act

JEL Classification: G34, G38, J31, J33

Suggested Citation

Guthrie, Katherine and Sokolowsky, Jan and Wan, Kam-Ming, CEO Compensation and Board Structure Revisited – Addendum (March 27, 2012). Available at SSRN: https://ssrn.com/abstract=2074895 or http://dx.doi.org/10.2139/ssrn.2074895

Katherine Guthrie

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
7572212832 (Phone)

Kam-Ming Wan

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong
(852) 2766-7053 (Phone)
(852) 2330-9845 (Fax)

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