Journal of Financial Economics Vol. 73 No. 3 2004
Who is in whose pocket? Director compensation, board independence, and barriers to effective monitoring
Abstract
We use a bargaining framework to examine empirically the relations between director compensation and board-of-director independence. Our evidence suggests that independent directors have a bargaining advantage over the CEO that results in compensation more closely aligned with shareholders’ objectives. Firms with more outsiders on their boards award directors more equity-based compensation. When the CEO's power over the board increases, compensation provides weaker incentives to monitor. Firms with more inside directors and with entrenched CEOs use less equity-based pay. Furthermore, firms with entrenched CEOs and CEOs who also chair the board are less likely to replace cash pay with equity.
- DOI
- 10.1016/j.jfineco.2003.11.002
- Volume
- 73
- Issue
- 3
- Pages
- 497-524
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref