Executive Compensation Structure and Corporate Governance Choices
Posted: 21 Sep 2000 Last revised: 27 Aug 2014
Date Written: January 2001
Using data that reflect the significant growth in incentive compensation during the last decade, we extend research in this area by specifying a more complete model that addresses both corporate governance and risk sharing factors that theory suggests should influence compensation policy. We find that the extent of incentive compensation is systematically related to other features of corporate governance, as well as to factors affecting managerial risk-aversion. The results support the following conclusions: a) the presence of outside directors and blockholders facilitates the use of incentive compensation; b) incentive compensation is inversely related to use of leverage; and c) the component of compensation that is incentive pay is lower for CEOs near or at retirement age and is decreasing in the percentage of firm stock already owned by the CEO.
JEL Classification: G34
Suggested Citation: Suggested Citation