How do ‘busy’ and ‘overlap’ directors relate to CEO pay structure and incentives?
41 Pages Posted: 3 Nov 2014 Last revised: 8 Nov 2016
Date Written: October 31, 2014
We examine how CEO compensation is affected by the presence of busy and overlap directors. We find that CEOs at firms with more busy directors receive greater total pay, fixed-salary and equity-linked pay and exhibit higher pay-performance (delta) and pay-risk (vega) sensitivities. Our results also suggest that CEOs at firms with more overlap directors take smaller total pay, equity-linked pay and reveal lower delta and vega. We further show that the impact of busy and overlap directors on CEO pay is more visible for firms with less complexity and low information acquisition cost. Our results sustain a wide variety of robustness tests including those for endogeneity, such as the treatment effect analysis using propensity score-matching, alternative proxies and samples.
Keywords: CEO pay; Incentives; Busy directors; Overlap directors; Delta; Vega; Boards; Endogeneity; Treatment effect; Propensity score matching.
JEL Classification: G14, G32, G34, J33, M52, M55
Suggested Citation: Suggested Citation