Article2008

The Impact of Corporate Governance on Executive Compensation

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153 citations0/0 files storedEuropean Financial Management

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Abstract This paper examines the relationship between the compensation of the top five executives at a set of over 400 publicly listed Canadian firms and various internal and external corporate governance‐related factors. The media is full of stories suggesting a relationship between large executive compensation packages and failures in governance at various levels within organisations, but there exists little formal analysis of many of these relationships. Our analysis provides empirical evidence supporting some of these assertions, refuting others and documenting new relationships. We find that variances in internal governance related to differences across firms in the characteristics of the CEO, compensation committee and board of directors do influence both the level and composition of executive compensation, especially for the CEO. Considering external measures of corporate governance, we find that different types of shareholders and competitive environments impact executive compensation. We do not find that either the internal or external governance characteristics dominate.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1973The Pricing of Options and Corporate Liabilities 1997A Survey of Corporate Governance 1986Large Shareholders and Corporate Control 2003Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500 1981Rank-Order Tournaments as Optimum Labor Contracts 1986The theory and practice of econometrics 1999Corporate governance, chief executive officer compensation, and firm performance

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