Compensation and Board Structure: Evidence From the Insurance Industry |
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| Authors: | David Mayers Clifford W Smith |
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| Institution: | 1. David Mayers is at the A. Gary Anderson Graduate School of Management, University of California Riverside;2. Clifford W. Smith is at the William E. Smith Graduate School of Business Administration, University of Rochester. |
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| Abstract: | Monitoring by outside board members and incentive compensation provisions in executive pay packages are alternative mechanisms for controlling incentive problems between owners and managers. The control hypothesis suggests that if incentive conflicts vary materially, those firms with more outside directors also should implement a higher degree of pay‐for‐performance sensitivity. Our evidence is consistent with this control hypothesis. We document a relation between board structure and the extent to which executive compensation is tied to performance in mutuals: compensation changes are significantly more sensitive to changes in return on assets when the fraction of outsiders on the board is high. |
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