Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200792 
Year of Publication: 
2016
Citation: 
[Journal:] KDI Journal of Economic Policy [ISSN:] 2586-4130 [Volume:] 38 [Issue:] 3 [Publisher:] Korea Development Institute (KDI) [Place:] Sejong [Year:] 2016 [Pages:] 17-35
Publisher: 
Korea Development Institute (KDI), Sejong
Abstract: 
In many advanced countries, most outside directors are executives, active or retired, at other firms; in other words, executives from other companies make executive compensation decisions. This situation may hinder the board of directors (BOD) in their efforts to optimize executive compensation levels objectively. Using a panel data analysis of the S&P 1500 companies, we provide supplemental evidence of whether, and to what extent, the concurrent executive employment of outside directors distorts the executive pay decisions at a given company. An unbiased fixed-effect estimation confirms that a $1.00 increase in CEO pay at outside directors' primary companies results in an approximate increase of $0.22 in CEO pay at the given company. From a policy perspective, this added agency problem — caused by the BOD and not by management — is noted as difficult to control; although a firm may establish board independence, the inherent concurrent employment of directors on a board continues to exist.
Subjects: 
CEO Compensation
DirectorAgency Problem
H825Outside Directors
Board of Directors
Corporate Governance
JEL: 
M12
G34
G38
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-sa Logo
Document Type: 
Article

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