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Compensation and Board Structure: Evidence From the Insurance Industry

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  • David Mayers
  • Clifford W. Smith

Abstract

Monitoring by outside board members and incentive compensation provisions in executive pay packages are alternative mechanisms for controlling incentive problems between owners and managers. The control hypothesis suggests that if incentive conflicts vary materially, those firms with more outside directors also should implement a higher degree of pay-for-performance sensitivity. Our evidence is consistent with this control hypothesis. We document a relation between board structure and the extent to which executive compensation is tied to performance in mutuals: compensation changes are significantly more sensitive to changes in return on assets when the fraction of outsiders on the board is high. Copyright (c) The Journal of Risk and Insurance, 2010.

Suggested Citation

  • David Mayers & Clifford W. Smith, 2010. "Compensation and Board Structure: Evidence From the Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 297-327.
  • Handle: RePEc:bla:jrinsu:v:77:y:2010:i:2:p:297-327
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    References listed on IDEAS

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    Cited by:

    1. Elena Merino & Montserrat Manzaneque & Alba Maria Priego, 2013. "“Board independence” and compensation structure of directors," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 2(2), pages 125-152.

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