How do ‘busy’ and ‘overlap’ directors relate to CEO pay structure and incentives?

41 Pages Posted: 3 Nov 2014 Last revised: 8 Nov 2016

See all articles by Karen L. Benson

Karen L. Benson

University of Queensland - Business School; Financial Research Network (FIRN)

Shams Pathan

Curtin University; Financial Research Network (FIRN)

Peh Hwa Wong

Independent

Date Written: October 31, 2014

Abstract

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

Benson, Karen L. and Pathan, Shams and Wong, Peh Hwa, How do ‘busy’ and ‘overlap’ directors relate to CEO pay structure and incentives? (October 31, 2014). Available at SSRN: https://ssrn.com/abstract=2517833 or http://dx.doi.org/10.2139/ssrn.2517833

Karen L. Benson (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Shams Pathan

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Peh Hwa Wong

Independent ( email )

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