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Wolves in the Hen-House? The Consequences of Formal CEO Involvement in the Executive Pay-Setting Process

Glenn Boyle () and Helen Roberts

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: New Zealand firms exhibit significant variation in the extent to which they formally involve CEOs in the executive pay-setting process: a considerable number sit on the compensation committee, while others are excluded from the board altogether. Using 1997-2005 data, we find that CEOs who sit on the compensation committee obtain generous annual pay rewards that have low sensitivity to poor performance shocks. By contrast, CEOs who are not board members receive pay increments that have low mean and high sensitivity to firm performance. Moreover, the greater the pay increment attributable to CEO involvement in the pay-setting process, the weaker is subsequent firm performance over one, three- and five-year periods.

Keywords: pay-performance sensitivity; compensation committee; CEO influence (search for similar items in EconPapers)
JEL-codes: G34 J33 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-07-29
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-lab
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