Board committee overlap and the use of earnings in CEO compensation contracts

59 Pages Posted: 15 Aug 2017 Last revised: 30 Aug 2021

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting

Luann J. Lynch

University of Virginia - Darden School of Business

Melissa Martin

University of Illinois at Chicago

Date Written: April 1, 2021

Abstract

Using proxy statement data describing the terms of compensation contracts, we examine how overlapping membership between compensation and audit committees influences the use of earnings metrics in compensation. While research predicts that such overlap could either increase or decrease the reliance on earnings, we find that firms with overlapping directors rely less on earnings-based performance measures in incentive contracts without altering the overall level of performance-contingent cash bonuses. In addition, we provide evidence that firms substitute earnings measures with measures less subject to earnings management. Our findings are robust to potential alternative explanations, extend to an implicit relation between earnings and compensation for a larger sample, and are not driven by the tendency towards an overlapping committee structure more broadly.

Keywords: Executive Compensation, Performance Measures, Compensation Committee

JEL Classification: M12, M5

Suggested Citation

Carter, Mary Ellen and Lynch, Luann J. and Martin, Melissa, Board committee overlap and the use of earnings in CEO compensation contracts (April 1, 2021). Available at SSRN: https://ssrn.com/abstract=3018538

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Melissa Martin (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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