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Do Shareholders Benefit from the Adoption of Incentive Pay for Directors?

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  • Mason Gerety
  • Chun-Keung Hoi
  • Ashok Robin
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    Abstract

    We assess the stock market reaction to proposals of incentive plans for directors in a sample of 289 firms. The reaction is both economically and statistically insignificant. This result suggests that shareholders do not necessarily benefit from the adoption of such plans. Across firms, we find that the market reaction depends on whether the CEO is involved in director selection; stock markets react negatively to plans proposed by firms without nomination committees. These findings highlight the important link between corporate governance and the effectiveness of director incentive plans.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 30 (2001)
    Issue (Month): 4 (Winter)
    Pages:

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    Handle: RePEc:fma:fmanag:gerety01

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    Cited by:
    1. Peter Hahn & Meziane Lasfer, 2011. "The compensation of non-executive directors: rationale, form, and findings," Journal of Management and Governance, Springer, vol. 15(4), pages 589-601, November.
    2. Yuval Deutsch & Mike Valente, 2013. "Compensating Outside Directors with Stock: The Impact on Non-Primary Stakeholders," Journal of Business Ethics, Springer, vol. 116(1), pages 67-85, August.
    3. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "CEO Involvement in Director Selection: Implications for REIT Dividend Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 35(4), pages 385-410, November.
    4. Farrell, Kathleen A. & Friesen, Geoffrey C. & Hersch, Philip L., 2008. "How do firms adjust director compensation?," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 153-162, April.
    5. Linn, Scott C. & Park, Daniel, 2005. "Outside director compensation policy and the investment opportunity set," Journal of Corporate Finance, Elsevier, vol. 11(4), pages 680-715, September.
    6. Wagner, Alexander F., 2011. "Board independence and competence," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 71-93, January.
    7. Shin-Rong Shiah-Hou & Chin-Wei Cheng, 2012. "Outside director experience, compensation, and performance," Managerial Finance, Emerald Group Publishing, vol. 38(10), pages 914-938, October.
    8. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "Director Compensation and CEO Bargaining Power in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 225-251, October.
    9. Zhilan Feng & Chinmoy Ghosh & Fan He & C. Sirmans, 2010. "Institutional Monitoring and REIT CEO Compensation," The Journal of Real Estate Finance and Economics, Springer, vol. 40(4), pages 446-479, May.
    10. Mónica Melle, 2005. "¿Cómo valora el mercado de valores español la adopción de planes de opciones sobre acciones para directivos y consejeros?," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 73-115, January.
    11. Crutchley, Claire E. & Minnick, Kristina, 2012. "Cash versus incentive compensation: Lawsuits and director pay," Journal of Business Research, Elsevier, vol. 65(7), pages 907-913.
    12. Pietro Marchetti & Valeria Stefanelli, 2009. "Does the compensation level of outside director depend on its personal profile? Some evidence from UK," Journal of Management and Governance, Springer, vol. 13(4), pages 325-354, November.

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