Director Stock Compensation: An Invitation to a Conspicuous Conflict of Interests?

Dan R. Dalton and Catherine M. Daily

Business Ethics Quarterly, 2001, vol. 11, issue 1, 89-108

Abstract: While many aspects of stock and option based compensation for corporate officers remain controversial, we suggest that the growing trend for similar practices in favor of boards of directors will prove to be even more contentious. High-ranking corporate managers do not set their own salaries nor authorize their own stock options. By contrast, boards of directors do, in fact, set their own compensation packages. Other potential conflicts of interest include setting option performance targets, stock buybacks, stock option resets and reloads, consolidations (mergers and acquisitions), and service on multiple boards. As trust is the most valuable commodity in a capitalist society, we suggest that these potential conflicts of interest and related outcomes may ultimately serve to erode any anticipated benefits of director stock compensation.

Date: 2001
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