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Board Control and CEO Compensation

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Brian K. Boyd at Northern Arizona University
Brian K. Boyd
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Abstract

The board of directors has been identified as a key internal control mechanism for setting CEO compensation. Theory suggests that CEOs will attempt to circumvent board control in an effort to maximize salary. This hypothesis was tested using a sample of 193 firms in a cross-section of industries. Corporate governance literature was reviewed to develop a multiple indicator measure of board control. Although, as hypothesized, CEO salaries were greater in firms with lower levels of control, CEO compensation was not significantly related to firm size or profitability.
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... The additional committee role creates additional responsibilities for the board, which allows for additional compensation (Higgs 2003). These roles carry additional responsibilities over the basic non-executive director role and may therefore receive additional remuneration (Adams and Ferreira 2008;Boyd 1994;Brick et al. 2006;Cordeiro et al. 2000;Linn and Park 2005). Consistent with being remunerated for additional accountability and responsibility, prior literature found that directors who perform more board functions receive higher pay (Goh and Gupta 2016;Bugeja et al. 2014;Fedaseyeu et al. 2018). ...
... The increased difficulty and complexity of the firm suggest that RCCs would be expected to commit a greater amount of effort and time to managing the setting of efficient compensation arrangements (Al-Okaily et al. 2022; Al-Okaily et al. 2023). The relevant literature usually observed a positive association with firm size (Hempel and Fay 1994;Boyd 1994;Cordeiro et al. 2000;Brenner and Schwalbach 2003;Ryan and Wiggins 2004;Linn and Park 2005;Brick et al. 2006;Farrell et al. 2008;Marchetti and Stefanelli 2009;Shiyyab et al. 2014;Bugeja et al. 2016;Núñez et al. 202). ...
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... Thus, directors with substantial shareholdings may have a stronger incentive to oversee the CEO and have interests that are more closely aligned with those of the shareholders (Shivdasani and Yermack, 1999). Nevertheless, this is anticipated to have a positive correlation with board control (Boyd, 1994). Furthermore, the necessity for increased direct compensation is diminished in such situations, as the shareholders already obtain significant financial dividends from their ownership of shares (Cheng and Firth, 2005). ...
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