Contents

CEO Compensation and Concurrent Executive Employment of Outside Directors: A Panel Data Analysis of S&P 1500 firms

KIM, Young-Chul / Song, SuJin

  • 1873 ITEM VIEW
  • 873 DOWNLOAD
Abstract

In many advanced countries, most outside directors are executives,

active or retired, at other firms; in other words, executives from other

companies make executive compensation decisions. This situation may

hinder the board of directors (BOD) in their efforts to optimize

executive compensation levels objectively. Using a panel data analysis

of the S&P 1500 companies, we provide supplemental evidence of

whether, and to what extent, the concurrent executive employment of

outside directors distorts the executive pay decisions at a given

company. An unbiased fixed-effect estimation confirms that a $1.00

increase in CEO pay at outside directors’ primary companies results

in an approximate increase of $0.22 in CEO pay at the given company.

From a policy perspective, this added agency problem — caused by

the BOD and not by management — is noted as difficult to control;

although a firm may establish board independence, the inherent

concurrent employment of directors on a board continues to exist.

Issue Date
2016-08
Files in This Item:

Click the button and follow the links to connect to the full text. (KDI CL members only)

qrcode

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.