Do Shareholders Benefit from the Adoption of Incentive Pay for Directors?

Mason Gerety, Chun-Keung Hoi and Ashok Robin

Financial Management, 2001, vol. 30, issue 4

Abstract: We assess the stock market reaction to proposals of incentive plans for directors in a sample of 289 firms. The reaction is both economically and statistically insignificant. This result suggests that shareholders do not necessarily benefit from the adoption of such plans. Across firms, we find that the market reaction depends on whether the CEO is involved in director selection; stock markets react negatively to plans proposed by firms without nomination committees. These findings highlight the important link between corporate governance and the effectiveness of director incentive plans.

Date: 2001
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