Executive Compensation and Regulation Imposed Governance: Evidence from the California Nonprofit Integrity Act (2004)

Posted: 6 Dec 2014 Last revised: 30 Jan 2015

See all articles by Sandip Dhole

Sandip Dhole

Monash University

Saleha Khumawala

University of Houston - C.T. Bauer College of Business

Sagarika Mishra

Deakin University

Tharindra Ranasinghe

American University

Date Written: August 22, 2014

Abstract

This study examines the impact of the California Nonprofit Integrity Act (2004) on CEO compensation costs in affected organizations. Contrary to the stated objective of the Act that executive compensation be “just and reasonable,” we find that CEO compensation costs for affected nonprofits during the post-regulation periods have increased by about 6.3 percent more when compared with a control group of comparable unaffected nonprofits. In addition, the relative increase in CEO compensation appears to come from nonprofits that have experienced greater regulatory cost increases. We do not find evidence that the Act resulted in a change in CEO pay performance sensitivity. The observed CEO pay increase is not systematically different across nonprofits that underpaid versus those that overpaid their CEOs during pre-Act periods. Overall, this paper highlights the unintended consequences of regulatory attempts to enhance governance in the not-for-profit sector.

Keywords: Executive compensation, Governance, Regulation, Nonprofits, California Nonprofit Integrity Act (2004)

JEL Classification: G38, J33, J38, L30, L38, L39, M12, M52

Suggested Citation

Dhole, Sandip and Khumawala, Saleha and Mishra, Sagarika and Ranasinghe, Tharindra, Executive Compensation and Regulation Imposed Governance: Evidence from the California Nonprofit Integrity Act (2004) (August 22, 2014). Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2534218

Sandip Dhole

Monash University ( email )

Wellington Road
Melbourne, Victoria 3145
Australia

Saleha Khumawala (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Sagarika Mishra

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Tharindra Ranasinghe

American University ( email )

United States

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