Remuneration, Retention, and Reputation Incentives for Outside Directors

David Yermack

841 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Auditing, Earnings Management, Governance Gender Diversity and Inequality

Abstract

ABSTRACT I study incentives received by outside directors in Fortune 500 firms from compensation, replacement, and the opportunity to obtain other directorships. Previous research has only shown these relations to apply under limited circumstances such as financial distress. Together these incentive mechanisms provide directors with wealth increases of approximately 11 cents per $1,000 rise in firm value. Although smaller than the performance sensitivities of CEOs, outside directors' incentives imply a change in wealth of about $285,000 for a 1 standard deviation (SD) change in typical firm performance. Cross‐sectional patterns of director equity awards conform to agency and financial theories.

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References

1983Separation of Ownership and Control 1990Performance Pay and Top-Management Incentives 1999Understanding the determinants of managerial ownership and the link between ownership and performance 2008Executive compensation 1999Board meeting frequency and firm performance 1988Compensation and Incentives: Practice vs. Theory 1988Stock prices and top management changes 2003Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments

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