Pay More Stocks and Options to Directors? Theory and Evidence of Board Compensation

Gang Nathan Dong ()
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Gang Nathan Dong: Columbia University

A chapter in Corporate Governance, 2012, pp 157-179 from Springer

Abstract: Abstract The compensation of board directors has received much attention, along with the growing debates on corporate governance in recent years, partly due to the ongoing financial crisis. While prior studies including Hall and Liebman (1998) have shown evidence of a dramatic increase in the use of equity-based incentives, resulting in an increase in the sensitivity of executive pay to firm performance, we ask whether it benefits shareholders to offer similar incentive contracts to board directors. This paper suggests that equity-based compensation for board directors is necessary and the level of incentives depends on directors’ effectiveness in monitoring and friendliness in advising CEOs. Using the market competition and pay correlation to proxy for monitoring effectiveness and advisory friendliness, we report empirical evidence supporting our hypotheses.

Keywords: Corporate Governance; Market Competition; Supervisory Board; Executive Compensation; Board Director (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-642-31579-4_7

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DOI: 10.1007/978-3-642-31579-4_7

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