Does the Age of Compensation Committee Members Matter for CEO Compensation?

59 Pages Posted: 6 Jul 2021

See all articles by Michael Clements

Michael Clements

University of Reading

Yiwei Li

University of Essex, EBS

Carol Padgett

ICMA Centre, Henley Business School, Univeristy of Reading

Xiu-Ye Zhang

The Australian National University-Research School of Accounting

Date Written: May 22, 2021

Abstract

We examine the impact of compensation committee members’ (CC members’) age on CEO compensation using FTSE 350 firms for the period 2002 to 2017. Sociological theory suggests that age is a significant demographic factor influencing individuals’ behaviour. We argue that monitoring intensity increases with age because older directors are more likely to commit to their fiduciary duties. We find that CC members’ age is negatively associated with the level of CEO pay but positively associated with pay–performance sensitivity after controlling for risk aversion attitude, experience in board monitoring, knowledge of the firm and other firm and CEO characteristics. The relationships remain robust for employing alternative measures for age and compensation and using two-stage least squares and high-dimensional fixed effects models. Further analysis demonstrates that the age effects are sensitive to the influence of alternative ethical factors and are strongest for those firms in which intense monitoring is most needed. The relationship between CC members’ age and CEO compensation persists over the additional controls for multiple dimensions of culturally inherited attributes of the CC members. Our study highlights the value of demographic factors in ensuring greater monitoring of the CEO compensation contracting process and provides pertinent evidence on the recent regulatory changes.

Keywords: Age; Compensation committee; CEO compensation; Monitoring intensity; Fiduciary duty

Suggested Citation

Clements, Michael and Li, Yiwei and Padgett, Carol and Zhang, Xiu-Ye, Does the Age of Compensation Committee Members Matter for CEO Compensation? (May 22, 2021). Available at SSRN: https://ssrn.com/abstract=3871605 or http://dx.doi.org/10.2139/ssrn.3871605

Michael Clements

University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Yiwei Li

University of Essex, EBS ( email )

University of Essex Wivenhoe Park
Essex business school
Colchester, CO4 3SQ
United Kingdom

Carol Padgett

ICMA Centre, Henley Business School, Univeristy of Reading ( email )

Whiteknights
P.O. Box 242
Reading, RG6 6BA
United Kingdom

Xiu-Ye Zhang (Contact Author)

The Australian National University-Research School of Accounting

Canberra, ACT 2601
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
116
Abstract Views
580
Rank
443,525
PlumX Metrics