Title

Do Qualifications Matter? New Evidence on Board Functions and Director Compensation

Publication Date

10-7-2013

Abstract

Prior research suggests that the effectiveness of corporate directors depends on their qualifications. We investigate whether directors’ qualifications affect the roles they perform on the board (board functions) and their compensation. On average, directors that are more qualified handle more board functions, resulting in higher pay, but this is not true for “co-opted” directors (joined the board after the CEO). However, co-opted directors are assigned more functions and receive higher pay on boards where the CEO’s influence is high. We also find that some firms award directors “discretionary compensation” (compensation that is unrelated to board functions), and that the likelihood of such compensation is correlated with CEO power. Overall, our evidence generates new insights into how director roles and financial incentives are allocated across directors, and the extent to which this allocation depends on CEO power.

Document Type

Article

Keywords

Boards of directors, Board duties, CEOs, Compensation, Qualifications, Outside directors

Disciplines

Finance

DOI

10.2139/ssrn.2335584

Source

SMU Cox: Finance (Topic)

Language

English

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