Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Benchmark on themselves: CEO-directors’ influence on the CEO compensation

Benchmark on themselves: CEO-directors’ influence on the CEO compensation The purpose of this paper is to examine whether or not the chief executive officers’ (CEO) compensation is affected by the compensation of the outside directors sitting on their board, who are also CEOs of other firms.Design/methodology/approachThe authors collect CEOs’ and CEO-directors’ compensation data from Execucomp. The authors then match the CEO-directors’ compensation with appointing firms’ CEO compensation and financial statements, from Execucomp and Compustat, respectively. The sample contains 7,561 firm-year observations from 1996 to 2010, with 1,213 distinct S&P 1500 firms and 1,563 distinct CEO-directors. The authors use ordinary least squared method with firm and year fixed effect in most of the analysis.FindingsWith both annual and excess compensation, the authors find strong evidence that CEO-directors’ compensation is related to the compensation of the CEO. Causally, when CEO-director overturns his/her excess compensation from negative to positive, the CEO is more likely to have similar upward change in the following year, while more interestingly, the opposite does not hold. These findings are persistent over time and remain robust to various additional tests.Research limitations/implicationsDue to the data availability, this paper investigates the S&P 1500 public firms.Originality/valueIt is the first work that investigates the link between board members’ external compensation and the CEO’s compensation. This sheds new light on the process of the CEO’s compensation design, in regard to both the information being utilized in the design procedure and the CEO’s influence on his/her own compensation. Second, this paper adds additional evidence to the choice of peer groups in compensation construction. Third, the authors enhance the understanding of the role of CEO-directors. The authors show that CEO-directors may be the ally of CEO, and help in justifying CEO’s compensation, especially when underpaid. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Benchmark on themselves: CEO-directors’ influence on the CEO compensation

Managerial Finance , Volume 45 (7): 17 – Aug 8, 2019

Loading next page...
 
/lp/emerald-publishing/benchmark-on-themselves-ceo-directors-influence-on-the-ceo-uC33cYhVvB

References (33)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0307-4358
DOI
10.1108/mf-03-2018-0123
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine whether or not the chief executive officers’ (CEO) compensation is affected by the compensation of the outside directors sitting on their board, who are also CEOs of other firms.Design/methodology/approachThe authors collect CEOs’ and CEO-directors’ compensation data from Execucomp. The authors then match the CEO-directors’ compensation with appointing firms’ CEO compensation and financial statements, from Execucomp and Compustat, respectively. The sample contains 7,561 firm-year observations from 1996 to 2010, with 1,213 distinct S&P 1500 firms and 1,563 distinct CEO-directors. The authors use ordinary least squared method with firm and year fixed effect in most of the analysis.FindingsWith both annual and excess compensation, the authors find strong evidence that CEO-directors’ compensation is related to the compensation of the CEO. Causally, when CEO-director overturns his/her excess compensation from negative to positive, the CEO is more likely to have similar upward change in the following year, while more interestingly, the opposite does not hold. These findings are persistent over time and remain robust to various additional tests.Research limitations/implicationsDue to the data availability, this paper investigates the S&P 1500 public firms.Originality/valueIt is the first work that investigates the link between board members’ external compensation and the CEO’s compensation. This sheds new light on the process of the CEO’s compensation design, in regard to both the information being utilized in the design procedure and the CEO’s influence on his/her own compensation. Second, this paper adds additional evidence to the choice of peer groups in compensation construction. Third, the authors enhance the understanding of the role of CEO-directors. The authors show that CEO-directors may be the ally of CEO, and help in justifying CEO’s compensation, especially when underpaid.

Journal

Managerial FinanceEmerald Publishing

Published: Aug 8, 2019

Keywords: Corporate governance; Compensation; G30; G34; M12

There are no references for this article.