Director Cronyism and CEO Pay in New Zealand
23 Pages Posted: 20 Aug 2016
Date Written: August 19, 2016
Abstract
This study examines the impact of director cronyism on the level of CEO pay in New Zealand. We present evidence that director compensation is consistent with the level of firm complexity and skill required to act as an independent board member. There is a strong positive relation between excess director compensation, the level and change in CEO cash and total compensation. Subsequent tests provide evidence of collusion between directors and CEOs that has driven the link between high director pay and high CEO pay. Firms with larger boards, fewer independent directors and where the CEO is a member of the compensation committee award higher CEO cash compensation.
Keywords: CEO compensation; director compensation; cronyism
JEL Classification: G34, G38, J33
Suggested Citation: Suggested Citation