Do Shareholders Benefit from the Adoption of Incentive Pay for Directors?

We assess the stock market reaction to proposals of incentive plans for directors in a sample of 289 firms. The reaction is both economically and statistically insignificant. This result suggests that shareholders do not necessarily benefit from the adoption of such plans. Across firms, we find that...

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Bibliographic Details
Published in:Financial management 2001, Vol.30 (4), p.45-61
Main Authors: Gerety, Mason, Hoi, Chun-Keung, Robin, Ashok
Format: Article
Language:English
Subjects:
Boards of directors
Business structures
Chief executive officers
Compensation
Compensation and benefits
Corporate directors
Corporate governance
Directors
Equity
Evaluation
Executive committees
Gravies
Hypotheses
Incentive pay
Incentive plans
Incentives
Incentives (Business)
Institutional investments
Nominations
P values
Proxy statements
Securities markets
Shareholder relations
Shareholders
Statistical analysis
Stock exchanges
Stock options
Stock shares
Stock-exchange
Stockholders
Studies
Surveys
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Summary:We assess the stock market reaction to proposals of incentive plans for directors in a sample of 289 firms. The reaction is both economically and statistically insignificant. This result suggests that shareholders do not necessarily benefit from the adoption of such plans. Across firms, we find that the market reaction depends on whether the CEO is involved in director selection; stock markets react negatively to plans proposed by firms without nomination committees. These findings highlight the important link between corporate governance and the effectiveness of director incentive plans.
ISSN:0046-3892
1755-053X
DOI:10.2307/3666258