Compensating with Style? The Role of Compensation-Committee Experience on CEO Pay

46 Pages Posted: 28 Aug 2021

See all articles by Joonil Lee

Joonil Lee

Kyung-Hee University

Sam (Sunghan) Lee

Iowa State University; Iowa State University - Department of Accounting and Finance

Kevin J. Murphy

University of Southern California - Marshall School of Business; USC Gould School of Law

Peter Oh

McGill University - Desautels Faculty of Management

Date Written: July 15, 2021

Abstract

We examine how the level and structure of CEO pay is influenced by the characteristics and past experience of the members of the compensation committee, and also how these characteristics and experiences affect the probability of committee appointment. Our main findings indicate that (1) CEO pay in the current firm is more likely to be above (or below) market if CEO pay in the committee-members’ prior-firm experience was also above (or below) market; (2) the influence of this past experience diminishes over time as current year’s pay decisions are more likely to be influenced by experience from recent past years than from experience further past; and (3) while new directors are more likely to be appointed to the compensation committee if they have prior compensation-committee experience, we find no evidence that new directors with experience with highly paid CEOs are more likely to be appointed to compensation committees, and also no evidence that that companies choose compensation committees with experiences matching the focal firm’s pay philosophy. Overall, our paper extends the literature on board of directors affecting CEO pay, and also contributes to the literature on managerial styles and contagion.

Keywords: compensation committee, director style, CEO pay

JEL Classification: G340; J33; M48

Suggested Citation

Lee, Joonil and Lee, Sam (Sunghan) and Murphy, Kevin J. and Oh, Peter, Compensating with Style? The Role of Compensation-Committee Experience on CEO Pay (July 15, 2021). Available at SSRN: https://ssrn.com/abstract=3911947 or http://dx.doi.org/10.2139/ssrn.3911947

Joonil Lee

Kyung-Hee University ( email )

Dongdaemun-ku
Seoul, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

Sam (Sunghan) Lee

Iowa State University ( email )

Gerdin Building 3323
Ames, IA 50010
United States

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Kevin J. Murphy

University of Southern California - Marshall School of Business ( email )

BRI 308, MC 0804
Los Angeles, CA 90089-0804
United States
213-740-6553 (Phone)
213-740-6650 (Fax)

USC Gould School of Law

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Peter Oh (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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