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Cronyism and the Determinants of Chairman Compensation

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  • Lars Oxelheim
  • Kevin Clarkson

Abstract

This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation—despite its fixed nature—is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management efforts at the expense of monitoring on behalf of investors. Supporting our cronyism argument, we find evidence that the gap between chairman and CEO compensation is less at firms where the chairman had previously served in the executive management team. The close ties between the chairman and CEO compensation add to the understanding of the relative success of the managerial power theory versus the agency theory in explaining CEO compensation. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Lars Oxelheim & Kevin Clarkson, 2015. "Cronyism and the Determinants of Chairman Compensation," Journal of Business Ethics, Springer, vol. 131(1), pages 69-87, September.
    • Handle: RePEc:kap:jbuset:v:131:y:2015:i:1:p:69-87
    DOI: 10.1007/s10551-014-2260-2
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    References listed on IDEAS

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    3. Sven-Olof Yrjö Collin & Yuliya Ponomareva & Sara Ottosson & Nina Sundberg, 2017. "Governance strategy and costs: board compensation in Sweden," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 685-713, September.
    4. Egor Evdokimov & Dean Hanlon & Edwin KiaYang Lim, 2022. "Do Generalist CEOs Magnify Boardroom Backscratching?," Journal of Business Ethics, Springer, vol. 181(1), pages 221-247, November.
    5. 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).
    6. Yuliya Ponomareva, 2019. "Balancing control and delegation: the moderating influence of managerial discretion on performance effects of board monitoring and CEO human capital," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(1), pages 195-225, March.
    7. Chen, Tao & Park, Hyeyoun & Rajwani, Tazeeb, 2024. "Diverse human resource slack and firm innovation: Evidence from politically connected firms," International Business Review, Elsevier, vol. 33(2).
    8. Street, Daniel A. & Hermanson, Dana R., 2019. "How do restatements affect outside directors and boards? A review of the literature," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 19-46.
    9. Stewart, Alex, 2020. "Family control, ambivalence, and preferential benefits," Journal of Family Business Strategy, Elsevier, vol. 11(4).

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