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Wolves in the Hen-House? The Consequences of Formal CEO Involvement in the Executive Pay-Setting Process

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New Zealand firms exhibit significant variation in the extent to which they formally involve CEOs in the executive pay-setting process: a considerable number sit on the compensation committee, while others are excluded from the board altogether. Using 1997-2005 data, we find that CEOs who sit on the compensation committee obtain generous annual pay rewards that have low sensitivity to poor performance shocks. By contrast, CEOs who are not board members receive pay increments that have low mean and high sensitivity to firm performance. Moreover, the greater the pay increment attributable to CEO involvement in the pay-setting process, the weaker is subsequent firm performance over one, three- and five-year periods.

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  • Glenn Boyle & Helen Roberts, 2010. "Wolves in the Hen-House? The Consequences of Formal CEO Involvement in the Executive Pay-Setting Process," Working Papers in Economics 10/45, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:10/45
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    File URL: https://repec.canterbury.ac.nz/cbt/econwp/1045.pdf
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    Cited by:

    1. Andres, Christian & Fernau, Erik & Theissen, Erik, 2014. "Should I stay or should I go? Former CEOs as monitors," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 26-47.
    2. Andres, Christian & Fernau, Erik & Theissen, Erik, 2012. "Is it better to say goodbye? When former executives set executive pay," CFR Working Papers 12-02, University of Cologne, Centre for Financial Research (CFR).

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    More about this item

    Keywords

    pay-performance sensitivity; compensation committee; CEO influence;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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