Shareholder Rights, Boards, and CEO Compensation

I analyze the role of executive compensation in corporate governance.As proxies for corporate governance, I use board size, boardindependence, CEO-chair duality, institutional ownership concentration,CEO tenure, and an index of shareholder rights. The resultsfrom a broad cross-section of large U.S. public firms are inconsistentwith recent claims that entrenched managers design their owncompensation contracts. The interactions of the corporate governancemechanisms with total pay-for-performance and excess compensationcan be explained by governance substitution. If a firm has generallyweaker governance, the compensation contract helps better alignthe interests of shareholders and the CEO.