Cronyism and the Determinants of Chairman Compensation

Research output: Contribution to journalArticle

Abstract

This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation—
despite its fixed nature—is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management efforts at the expense of monitoring on behalf of investors. Supporting our cronyism argument, we find evidence that the gap between chairman
and CEO compensation is less at firms where the chairman had previously served in the executive management team. The close ties between the chairman and CEO compensation add to the understanding of the relative success of the managerial power theory versus the agency theory in explaining CEO compensation.

Details

Authors
Organisations
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Business Administration

Keywords

  • Chairman compensation, CEO compensation, Cronyism, Pay-for-performance, Ownership structure, Supervisory board
Original languageEnglish
Pages (from-to)69-87
JournalJournal of Business Ethics
Volume131
Issue number1
Publication statusPublished - 2015
Publication categoryResearch
Peer-reviewedYes