January 19, 2007
Executive Compensation Unraveled
A new study by Amir Barnea and Ilan Guedj, University of Texas, has found that CEOs at companies whose directors sat on numerous other boards were paid 13 percent more that CEOs whose directors did not sit on other boards. The study is an indictment of sorts of outside directors, most of whom often sit on several boards. There are several possible explanations. Some argue this is evidence of the power of "friend of friend" networks that facilitates mutual back-scratching. Others argue that it is evidence of a viral spread of self-serving practices. I would argue that it is not that complex -- a board member with a reputation for supporting CEOs gets other jobs. An outside directors that is friendly to CEOs on one board gets selected by other CEOs for other board positions. The bottom line on the data is the new study of 3,000 companies (I cannot recall the authors) that show companies that lavishly pay CEOs under perform the market.
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Maybe those CEOs are paid more because board memberships signify a certain respect for the candidate in the market.
Posted by: SD Law Student | Jan 19, 2007 11:38:10 PM