Conflicting Objectives within the Board: Evidence from Overlapping Audit and Compensation Committee Members
Udi Hoitash () and
Rani Hoitash ()
Additional contact information
Udi Hoitash: Northeastern University
Rani Hoitash: Bentley College
Group Decision and Negotiation, 2009, vol. 18, issue 1, No 5, 57-73
Abstract:
Abstract The board of directors is an elite group that faces multifaceted tasks. The board needs to implement decisions on a wide variety of subject matter. These decisions are often delegated to specialized sub-committees within the board. The different objectives of each sub-committee can result in conflicting interests leading to decisions that are sub-optimal. For example, at times, the objectives of the compensation and the audit committee are not aligned. The objective of compensation committees is to grant CEOs compensation packages reflective of their performance. Yet, these compensation packages might contain incentives that could motivate CEOs to influence the financial reporting process in order to reflect better performance, increasing the risk of poor quality financials. In contrast, the objective of audit committees is to oversee the quality of the financial reports and the process that leads to them. Therefore, they would favor compensation packages that reduce the risk of earnings manipulation. We examine public companies that have overlapping compensation and audit committee members and find a higher proportion of CEO incentive compensation in companies with less overlap among audit and compensation committee members. These results suggest that separating the members within these committees might contribute to the effectiveness of board decisions.
Keywords: Audit Committee; Compensation Committee; Committee separation; CEO compensation; Financial reporting quality (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)
Downloads: (external link)
http://link.springer.com/10.1007/s10726-008-9125-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:spr:grdene:v:18:y:2009:i:1:d:10.1007_s10726-008-9125-y
Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10726/PS2
DOI: 10.1007/s10726-008-9125-y
Access Statistics for this article
Group Decision and Negotiation is currently edited by Gregory E. Kersten
More articles in Group Decision and Negotiation from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().