IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v56y2021i2p693-744_10.html
   My bibliography  Save this article

Does Independent Advice to the Board Affect CEO Compensation?

Author

Listed:
  • Bakke, Tor-Erik
  • Mahmudi, Hamed

Abstract

This article investigates the role external advice plays in the board’s determination of chief executive officer (CEO) compensation. We show that CEO incentive pay increases with the degree of compensation consultant independence using a quasi-natural experiment provided by the creation of an independent consultant after separation from an affiliated consultant. Specifically, switching to an independent consultant significantly increases the pay–performance sensitivity and relative performance evaluation of CEO contracts. Despite the benefits of independent advice, independent consultants may not be hired due to the influence of powerful CEOs or because boards already possess adequate expertise.

Suggested Citation

  • Bakke, Tor-Erik & Mahmudi, Hamed, 2021. "Does Independent Advice to the Board Affect CEO Compensation?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(2), pages 693-744, March.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:2:p:693-744_10
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109019001030/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cheng, Xu & Kong, Dongmin & Kong, Gaowen, 2022. "Foreign institutional investors and executive compensation incentives: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 66(C).
    2. Zhao, Qicheng & Hu, Changyu & Ma, Ruiyun & Yin, Yugang & Liu, Yahui, 2024. "Foreign shareholders and executive compensation stickiness: Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    3. Frye, Melissa B. & Gatchev, Vladimir A. & Pham, Duong T., 2024. "Director self-dealing: Evidence from compensation peer groups," Journal of Corporate Finance, Elsevier, vol. 85(C).
    4. Wang, Qiong & Qiu, Muqing, 2023. "Strength in numbers: Minority shareholders' participation and executives' pay-performance sensitivity," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:56:y:2021:i:2:p:693-744_10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.