Is top-management remuneration influenced by board characteristics?

Abstract

Purpose – The purpose of this article is to examine if certain board characteristics have an impact on the total remuneration of top management and the ratio of stock-based remuneration to total top-management remuneration. Design/methodology/approach – The study draws on data from the largest public Canadian companies, the constituents of the TSX/60 index. The study controls for firm size and profitability. Findings – The authors concludes that total remuneration of top management is directly linked to board-member total remuneration and the board average number of director-tenure years. The study also shows that the ratio of stock-based to total top-management remuneration is positively affected by the percentage of independent directors, total remuneration of board directors, the ratio of stock-based remuneration of directors to their total remuneration and the average number of tenure years of the board of directors. Practical implications – If regulators are determined to curb the excesses in top-management remuneration by means of promoting boards with certain characteristics, they should implement measures facilitating the control of directors’ remuneration and tenure, to discourage cronyistic behavior. Good corporate governance requires that the board act as a counterbalance to top management, ensuring that a substantial percentage of top-executive total compensation is variable, and not fixed. According to our findings, the boards that are the most likely to hold managerial avoidance of variable pay in check are those favoring director independence, variable director remuneration and longer director tenures. Social implications – The present article examines specifically the latter aspect, namely, the role of board characteristics (independence, size, compensation, board director ownership and tenure, etc.) in the determination of top-management compensation. This relationship is important because it allows us to further the analysis of corporate governance. If the above-mentioned traits of boards have a meaningful relationship with the compensation of the top management, one might conclude that certain practices in the composition of boards could influence good corporate governance practices. This is relevant for regulatory agencies, for investors and for corporations. Originality/value – The article adds to the extant literature in a number of ways. Firstly, it considers the role of the traits of the board in the determination of the compensation of the top-management teams, and not only of the chief executive officer, as is the focus of previous literature. Secondly, the article focuses on the power interplay between boards and managers, and, more particularly, on the ability of boards to be an effective mechanism of corporate governance. Finally, the article examines the potential impact of board traits in the determination of top-management compensation in the context of Canadian firms, a subject that has received less attention from academic research, which has mostly concentrated on analyzing the issue in the US context.

Independent directors and firm value of group-affiliated firms

“…Furthermore, they find that the market discounts the incidence of multiple directorships held by independent directors in group-affiliated firms. Similarly, Deschenes et al (2015) find that with time, board directors show a tendency to lose their ability to control the top management.…”

An empirical study of the relationship between accounting conservatism and executive compensation-performance sensitivity

“…The novel intention of such contracts is to motivate executives to work hard and to restrict their opportunism (Raffi et al , 2014). The relationship between executive remuneration and corporate governance has been well-documented in the literature (Core et al , 1999; Firth et al , 2007; Baixauli-Soler and Sanchez-Marin, 2015; Deschenes et al , 2015; Ntim et al , 2017).…”

Management gender diversity, executives compensation and firm performance

“…Corporate governance is a mechanism that shareholders use to monitor firm executives to minimize agency costs (Caskey and Laux, 2017;Zhang et al, 2019). The relationship between Management gender diversity 115 executive remuneration and corporate governance has been well-documented in the previous literature (Core et al, 1999;Firth et al, 2007;Zhong et al, 2014;Baixauli-Soler and Sanchez-Marin, 2015;Deschenes et al, 2015;Siddiqui, 2015;Ntim et al, 2017;Zhang et al, 2019). Also, the relationship between executives' pay and firm performance has always been a topic of considerable controversy in the corporate governance literature (Ahmadi et al, 2018;Catalyst, 2014;Dan, 2013;Ntim et al, 2015).…”