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Director and CEO pay reciprocity and CEO board membership

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  • Li, Michelle
  • Roberts, Helen

Abstract

This study examines the relation between changes in non-executive director compensation and changes in CEO compensation. Consistent with norms of reciprocity, we report a positive relationship between changes in director pay and change in CEO pay for those firms where the CEO is also a board member. The results support the view that when a CEO who is also a board member validates increases in director pay, directors respond in kind, approving increases in CEO pay. This reciprocity does not benefit shareholders by improving subsequent firm value. We report that excess change in CEO and director compensation reduces subsequent change in firm value for firms where the CEO is a board member.

Suggested Citation

  • Li, Michelle & Roberts, Helen, 2017. "Director and CEO pay reciprocity and CEO board membership," Journal of Economics and Business, Elsevier, vol. 94(C), pages 54-65.
    • Handle: RePEc:eee:jebusi:v:94:y:2017:i:c:p:54-65
    DOI: 10.1016/j.jeconbus.2017.10.002
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    Cited by:

    1. Olivier Godechot & Joanne Horton & Yuval Millo, 2022. "Executive Pay: Board Reciprocity Counts," Post-Print hal-03924965, HAL.
    2. Zhu, Jiajun & Gao, Jing & Tan, Hongping, 2021. "How the CEO power and age dissimilarity shape the chair-CEO pay gap: Empirical evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    3. Teplova, Tamara V. & Sokolova, Tatiana V., 2019. "Surprises of corporate governance and Russian firms debt," Journal of Economics and Business, Elsevier, vol. 102(C), pages 39-56.

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    More about this item

    Keywords

    CEO compensation; Director compensation; Pay reciprocity; CEO board membership;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • 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

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