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How do firms adjust director compensation?

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Author Info
Farrell, Kathleen A.
Friesen, Geoffrey C.
Hersch, Philip L.
Abstract

This paper examines outside director compensation for a sample of 237 Fortune 500 firms over the 1998-2004 period. We document a trend towards fixed-value equity compensation and away from cash only and fixed-number equity compensation. Adjustments to director compensation are consistent with firms targeting a market level of compensation, and firms that deviate from their market wage symmetrically adjust compensation back toward the market level. We also document the relation between changes in compensation and changes in equity values, and find that upward adjustments begin sooner than downward adjustments. When equity values rise, we find virtually no immediate offset to director compensation. However, when equity values fall, fixed-number equity compensation is adjusted in the same period (by awarding more shares or options) to offset the loss of income by almost one-third. Thus, the magnitude of adjustments towards the market wage level is symmetric, but the timing is not.

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File URL: http://www.sciencedirect.com/science/article/B6VFK-4S0204G-1/1/cf8c23075175f4dbab9f94e7fc5b2cf4
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Publisher Info
Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 14 (2008)
Issue (Month): 2 (April)
Pages: 153-162
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Handle: RePEc:eee:corfin:v:14:y:2008:i:2:p:153-162

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Web page: http://www.elsevier.com/locate/jcorpfin

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  1. Aleksandra Gregoric & Sašo Polanec & Sergeja Slapnicar, 2008. "Pay me Right: Reference Values and Executive Compensation," LICOS Discussion Papers 22008, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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This page was last updated on 2009-11-7.

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