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Corporate Governance and Executive Pay: Evidence from a Recent Reform

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  • Teodora Paligorova

Abstract

I examine the effect of the Sarbanes-Oxley Act of 2002 (SOX) on the structure of executive pay. Specifically, I consider the increased board oversight implied by SOX, which is expected to weaken the pay-for-performance link under traditional agency models. Alternatively, if entrenched CEOs managed to capture the pay process before SOX, stronger boards are expected to reduce CEO pay for luck and strengthen pay for performance. Using ExecuComp data, I find that the pay-for-performance link increases after 2002, while pay for luck decreases only in firms with weaker board oversight prior to 2002, that is, in firms more affected by SOX stipulations. In contrast, the pay-for-performance link changes little in firms with independent boards.

Suggested Citation

  • Teodora Paligorova, 2007. "Corporate Governance and Executive Pay: Evidence from a Recent Reform," CERGE-EI Working Papers wp331, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp331
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    1. Raffi Indjejikian & Michal Matějka, 2009. "CFO Fiduciary Responsibilities and Annual Bonus Incentives," Journal of Accounting Research, Wiley Blackwell, vol. 47(4), pages 1061-1093, September.

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    More about this item

    Keywords

    Corporate governance; The Sarbanes-Oxley Act; incentive pay.;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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