Corporate Governance and Executive Pay: Evidence from a Recent Reform
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.
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- Sendhil Mullainathan & Marianne Bertrand, 1998.
"Executive Compensation and Incentives: The Impact of Takeover Legislation,"
98-20, Massachusetts Institute of Technology (MIT), Department of Economics.
- Marianne Bertrand & Sendhil Mullainathan, 1998. "Executive Compensation and Incentives: The Impact of Takeover Legislation," NBER Working Papers 6830, National Bureau of Economic Research, Inc.
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Oxford Review of Economic Policy,
Oxford University Press, vol. 21(2), pages 283-303, Summer.
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"Performance Pay And Top Management Incentives,"
88-04, Rochester, Business - Managerial Economics Research Center.
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