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How (not) to pay non-executive directors

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  • Dilger, Alexander

Abstract

Performance pay, at least as usually understand, is no good idea for non-executive directors. They have to supervise and control or in some situations even to fire and replace the executive managers. This means that their performance as supervisors is totally different from the performance of the supervised executive managers and even the company at large. Moreover, they are mostly interested in other things than their pay. Thus, their pay should be fixed and not too high. -- Bezahlung nach Leistung, zumindest nach dem üblichen Verständnis, ist keine gute Idee für Aufsichtsratsmitglieder. Diese sollen die Vorstandsmitglieder beaufsichtigen und kontrollieren oder in manchen Fällen sogar entlassen und ersetzen. Das bedeutet, dass ihre Leistung als Aufseher eine vollkommen andere ist als diejenige der von ihnen beaufsichtigten Manager oder sogar des gesamten Unternehmens. Außerdem sind sie meistens mehr an anderen Dingen interessiert als an ihrer Bezahlung. Deshalb sollte ihre Bezahlung fix und nicht zu hoch sein.

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Bibliographic Info

Paper provided by University of Münster, Institute for Organisational Economics in its series Discussion Papers of the Institute for Organisational Economics with number 9/2012.

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Date of creation: 2012
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Handle: RePEc:zbw:umiodp:92012

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  1. Bruno S. Frey & Margit Osterloh, 2005. "Yes, Managers Should Be Paid Like Bureaucrats," CESifo Working Paper Series 1379, CESifo Group Munich.
  2. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
  3. Rüdiger Fahlenbrach & Angie Low & René M. Stulz, 2010. "The dark side of outside directors: Do they quit when they are most needed?," NBER Working Papers 15917, National Bureau of Economic Research, Inc.
  4. James A. Mirrlees, 1976. "The Optimal Structure of Incentives and Authority Within an Organization," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 7(1), pages 105-131, Spring.
  5. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 369-386, March.
  6. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc.
  7. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
  8. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(2), pages 225-64, April.
  9. Lucian A. Bebchuk & Yaniv Grinstein & Urs Peyer, 2006. "Lucky Directors," NBER Working Papers 12811, National Bureau of Economic Research, Inc.
  10. Lucian A. Bebchuk & Yaniv Grinstein & Urs Peyer, 2010. "Lucky CEOs and Lucky Directors," Journal of Finance, American Finance Association, American Finance Association, vol. 65(6), pages 2363-2401, December.
  11. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, Elsevier, vol. 20(2), pages 231-259, April.
  12. Ingolf Dittmann & Ernst Maug & Christoph Schneider, 2010. "Bankers on the Boards of German Firms: What They Do, What They Are Worth, and Why They Are (Still) There," Review of Finance, European Finance Association, European Finance Association, vol. 14(1), pages 35-71.
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