US Knows Us in the UK: On Director Networks and CEO Compensation

Abstract

:We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996-2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors' monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the 'right' type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms. Acknowledgements:We are grateful to

Average Pay in Banks: Do Agency Problems and Bank Performance Matter?

“…By contrast, aspects of governance have robust significant effects in a manner that suggests the importance of agency problems. For instance, the presence of a Remuneration Committee leads to higher average pay, which may well be due to social network effects involving executives and NEDs in the manner discussed by Renneboog and Zhao (2011). Table 3 below shows our estimation results, with equations (1) and (2) being as stated in the Methods section above and equations (3) and (4) being similar to (2) albeit with regressors dropped for reasons of robustness testing.…”

“…Having a Remuneration Committee and a higher Director Ratio exacerbates agency problems relating to pay because it places control over remuneration in the hands of individuals who are part of the same social network as management (Renneboog and Zhao, 2011) and creates a means of appearing to justify high pay.…”

“…This is because the way in It can also be expected that a higher proportion of NEDs on the Board leads to higher pay. This is because of the argument of Renneboog and Zhao (2011) that Remuneration Committee members permit higher pay, because they are part of the same social network as management. If NEDs on the Remuneration Committee belong to such networks, then NEDs in general will also, and so will suffer from the same incentive distortions.…”

Dynamic Approach to Defining Intellectual Capital of Board of Directors and Its Structure

“…Перекрестные позиции директоров слу-жат одним из проявлений так называемых сетей директоров (directors networks) [Renneboog, Zhao, 2011;. В ряде иссле-дований установлено влияние наличия се-тевых связей на результаты деятельности компании [Geletkanycz, Boyd, 2011;Larc ker, So, Wang, 2013].…”

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

“…It depicts the opportunity of the directors to gain knowledge and experience first-hand. Additionally, we incorporate a measure of centrality into our model (Renneboog and Zhao 2011;Ahuja et al 2009;Shipilov et al 2010). EIGENVECTOR_CENTRALITY is the average eigenvector centrality of all members of the focal board.…”