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The Effect of Compensation Committee Quality on the Association between CEO Cash Compensation and Accounting Performance

The Effect of Compensation Committee Quality on the Association between CEO Cash Compensation and... ABSTRACT Manuscript Type: Empirical Research Question/Issue: We examine the effect of compensation committee quality on the association between CEO cash compensation and accounting earnings and the moderating effects of growth opportunities and earnings status. Research Findings/Insights: Using a sample of 812 US firms, we find that CEO cash compensation is more positively associated with accounting earnings when firms have high compensation committee quality. We also find that the positive effect of compensation committee quality on the association between CEO cash compensation and accounting earnings is less for high growth firms or loss‐making firms. Theoretical Implications: We contribute to the agency‐based research on CEO compensation by: 1) directly examining the impact of compensation committee quality on the sensitivity of CEO cash compensation to accounting earnings; 2) examining whether the role of compensation committee quality varies across firms; and 3) developing a broader and richer measure of compensation committee quality. Practical Implications: Our findings imply that shareholders and directors should be concerned about the composition of compensation committees as we find that compensation committee quality varies depending on compensation committee size and other characteristics of the committee members. Our findings also imply that for compensation committee members, there are greater challenges in monitoring CEO compensation contracts for firms with high growth or that incur losses. Further, our findings imply that even when all compensation committees are regulated to be fully independent, there are still quality differences among these independent compensation committees. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

The Effect of Compensation Committee Quality on the Association between CEO Cash Compensation and Accounting Performance

Corporate Governance , Volume 17 (2) – Mar 1, 2009

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References (86)

Publisher
Wiley
Copyright
© 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd
ISSN
0964-8410
eISSN
1467-8683
DOI
10.1111/j.1467-8683.2008.00726.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Manuscript Type: Empirical Research Question/Issue: We examine the effect of compensation committee quality on the association between CEO cash compensation and accounting earnings and the moderating effects of growth opportunities and earnings status. Research Findings/Insights: Using a sample of 812 US firms, we find that CEO cash compensation is more positively associated with accounting earnings when firms have high compensation committee quality. We also find that the positive effect of compensation committee quality on the association between CEO cash compensation and accounting earnings is less for high growth firms or loss‐making firms. Theoretical Implications: We contribute to the agency‐based research on CEO compensation by: 1) directly examining the impact of compensation committee quality on the sensitivity of CEO cash compensation to accounting earnings; 2) examining whether the role of compensation committee quality varies across firms; and 3) developing a broader and richer measure of compensation committee quality. Practical Implications: Our findings imply that shareholders and directors should be concerned about the composition of compensation committees as we find that compensation committee quality varies depending on compensation committee size and other characteristics of the committee members. Our findings also imply that for compensation committee members, there are greater challenges in monitoring CEO compensation contracts for firms with high growth or that incur losses. Further, our findings imply that even when all compensation committees are regulated to be fully independent, there are still quality differences among these independent compensation committees.

Journal

Corporate GovernanceWiley

Published: Mar 1, 2009

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