How Much Does Nonprofit Board Governance Matter? Role of Interlocking Directorates, Executive Power, and Women on Boards in Executive Compensation

Abstract

This article develops an executive compensation model focusing on board governance structure in nonprofit organizations. Drawn from a panel of nonprofits in three Upstate New York cities from 1998 to 2014, the analysis shows that chief executive officers (CEOs) compensation is positively associated with interlocking directorships of CEOs and boards of directors. The results reveal that the executives enjoy more compensation when they serve on the boards of other nonprofit organizations, hold more power in a leadership position with CEO duality and longer tenure, and when the organizations are led by busy boards where a majority of members in the boardroom sit on the boards of multiple other nonprofits. The analysis further shows that financial rewards offered to the executives are contingent upon women’s representation in the boardroom. These findings suggest board governance composition plays a critical role in executive compensation. Implications for practice and future research are discussed.