Impact of the board, compensation committee and ownership structure on CEO and director compensation

Abstract

This study examines the impact of the board, compensation committee and ownership structure on CEO and executive director compensation. I find strong evidence to support the managerial power argument (Bebchuk, Fried and Walker, 2002) that appointing directors with related working experience not only increases the total compensation level for CEO and executive directors, it also creates large pay disparity with industry pay averages. In addition, I find several variables which have significant impact on executive compensation simultaneously. A larger board is associated with lower total executive compensation and reduced excess pay. In contrast, a smaller compensation committee results in higher levels of executive compensation. CEO duality has a clear increasing effect on the total level of executive compensation. I also find a positive linear relationship between managerial ownership and the proportion of fixed executive pay.