Board Independence, CEO Pay, and Camouflaged Compensation

Pablo Ruiz-Verdú and Ravi Singh

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: We study how directors' reputational concerns influence executive compensation and the use ofcamouflaged forms of pay. We show that, in order to signal their independence to investors,boards lower managers' pay, but may also pay managers in hidden ways or structure compensationinefficiently. We also show that independent boards are more likely to make use of hiddencompensation than manager-friendly boards. We apply our model to study the costs and benefitsof greater pay transparency and of measures, such as say-on-pay initiatives, that increase boards'accountability to shareholders

Keywords: Executive; compensation; Board; independence; Hidden; pay; Signaling; Director; Reputation (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cta and nep-hrm
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