Does the Composition of the Compensation Committee Influence CEO Compensation Practices?

Newman, Harry A.; Mozes, Haim A.

doi:10.2307/3666182

Cited by 171 publications

(134 citation statements)

References 17 publications

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“…The quality of compensation committees directly affects executive compensation through the definition of remuneration packages whose aim is to align manager and shareholder interests. Indeed, scholars highlight that high quality compensation committee leads to better designed executive remuneration contracts that motivate managers to take value-maximizing decisions, resulting in higher firm performance (Newman & Mozes, 1999;Anderson & Bizjak, 2003;Vafeas, 2003).…”

Section: Introductionmentioning

confidence: 99%

“…More specifically, we assess whether and how the composition of compensation committee influences the effectiveness of SOPs in aligning managerial interests to those of outside shareholders. Furthermore, we introduce a measure of compensation committee quality, which is broader than the deeply investigated independence of its members (Daily, Johnson, Ellstrand, & Dalton, 1998;Conyon & Peck, 1998;Newman & Mozes, 1999;Vafeas, 2003;Conyon & He, 2004;Conyon, 2014). Finally, we identify the elements of the SOPs that define effective executive remuneration contracts, thus providing also useful contributions to practitioners and regulators.…”

Section: Introductionmentioning

confidence: 99%

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Compensation Committee Quality and Effective Executive Remuneration

Catuogno¹,

Arena²,

Viganò³

2016

IJBM

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Grounding in the agency theory, this paper questions whether high quality compensation committee influences the design of executive remuneration towards the alignment of the contrasting interests between managers and shareholders. Relying on a comprehensive approach that captures the compensation committee quality based on different attributes (i.e. independence, interlocking directorates, directors appointed by minorities) we conduct a two-step empirical analysis. First, we illustrate the evolution over time of the stock option plan characteristics and construct an illustrative diagram that shows the linkages between the attributes of the compensation committee quality and the elements of the option plans. Second, we run a probit regression analysis to deeply investigate the picture emerging from the diagram. Our results document that the quality of compensation committee significantly affects the assignment of incentive stock option plans. The paper evidence advances the knowledge in the literature on compensation committee and executive remuneration, by highlighting that structural characteristics of the committee other than independence of its members play a pivotal role in writing effective remuneration contracts for the executives. Our findings are also useful for investors and policymakers.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Compensation Committee Quality and Effective Executive Remuneration

Catuogno¹,

Arena²,

Viganò³

2016

IJBM

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“…This led to the recent regulatory and policy reforms. 4 However, this position does not necessarily imply an association between affiliated or interdependent RC members and CEO compensation [11,15]. One possible reason for this is that affiliated or interdependent directors serving on a powerful committee are mindful of their duty to shareholders, regardless of their level of dependence [11].…”

Section: H1: Top Executive Compensation Levels Will Be Relatively Higmentioning

confidence: 99%

“…Therefore, the level of board independence plays a major role in the effectiveness of executive compensation in regard to reducing the agency problem (e.g. [11,[13][14][15][16][17]) and positively relates to constraints on managerial influence [18]. 2 For example, [5].…”

Section: Prior Studies and Hypothesis Developmentmentioning

confidence: 99%

Remuneration Committee, Board Independence and Top Executive Compensation

Kuo

2014

JRFM

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Abstract:In this study, we examine whether the levels and structures of top executive compensation vary discernibly with different levels of board independence. We also examine how the newly mandated adoption of the remuneration committee (RC) in Taiwan affects the board independence-executive pay relation. The mandatory establishment of RC for Taiwanese public firms, starting in 2011, is intended to strengthen the reasonableness and effectiveness of the executive compensation structure; thus, it is timely and of interest for practitioners and regulators to understand whether the establishment of RCs can effectively discipline top executive compensation policies. We first find that CEOs of firms that do not appoint independent directors have greater levels of annual pay than is the case for firms that have appointed independent directors, after controlling for the effect of CEO pay determinants. Second, we find that CEO pay for early RC adopters is more closely related to firm performance. Third, we find that the establishing of RCs may decrease CEO pay and enhance the pay-performance association, in particular for firms that have not appointed independent directors; however, this effect is not found to be statistically significant.

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“…Dalton, Daily, Ellstrand, and Johnson, 1998;Daily, Johnson, Ellstrand and Dalton, 1998). Conyon and Peck (1998), Daily et al (1998) andNewman andMozes (1999) have demonstrated that compensation committee composition is important in determining CEO pay. Despite these important social explanations for understanding CEO pay outcomes, there has been hardly any prior research on the "pervasive influence of compensation consultants" (Finkelstein and Hambrick, 1996, page 275).…”

Section: Compensation Consultantsmentioning

confidence: 99%

Compensation Consultants and Executive Pay

Conyon¹

2010

Corporate Governance

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This study investigates the relation between compensation consultants and CEO pay using a unique data set of over 200 publicly traded UK firms. We present theoretical arguments that compensation consultants (who are experts in the market for compensation services) promote pay contracts to align managerial and shareholder interests. Empirically we show that CEO pay is greater in firms using large consultants, namely consultants with a greater number of clients. There are other important contingencies. We find that CEO pay is greater in firms whose compensation consultants supply other services to the client firm. We also find CEO pay is greater the higher is the average CEO pay of the consultants other clients. To explain this phenomenon we draw on two other theoretical paradigms --managerial power and social comparison theory. Overall, the evidence provides consistent support for our hypotheses. We argue that the results have important implications for executive pay scholars, as well as for the designers of compensation packages. (JEL G31, G34, M41)

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Does the Composition of the Compensation Committee Influence CEO Compensation Practices?

Cited by 171 publications

References 17 publications

Compensation Committee Quality and Effective Executive Remuneration

Compensation Committee Quality and Effective Executive Remuneration

Remuneration Committee, Board Independence and Top Executive Compensation

Compensation Consultants and Executive Pay

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