Corporate Governance and Executive Pay: Evidence from a Recent Reform

Teodora Paligorova ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: I examine the effect of the Sarbanes-Oxley Act of 2002 (SOX) on the structure of executive pay. Specifically, I consider the increased board oversight implied by SOX, which is expected to weaken the pay-for-performance link under traditional agency models. Alternatively, if entrenched CEOs managed to capture the pay process before SOX, stronger boards are expected to reduce CEO pay for luck and strengthen pay for performance. Using ExecuComp data, I find that the pay-for-performance link increases after 2002, while pay for luck decreases only in firms with weaker board oversight prior to 2002, that is, in firms more affected by SOX stipulations. In contrast, the pay-for-performance link changes little in firms with independent boards.

Keywords: Corporate governance; The Sarbanes-Oxley Act; incentive pay. (search for similar items in EconPapers)
JEL-codes: G38 J33 M52 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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