Board composition and nonprofit conduct: Evidence from hospitals

This study uses data from hospitals to test the hypothesis that management representation on nonprofit boards leads to “excessive” CEO pay, defined as compensation that exceeds the level predicted by a market wage model. We document a relatively small, but statistically significant, positive associa...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2010-11, Vol.76 (2), p.196-208
Main Authors: Brickley, James A., Van Horn, R. Lawrence, Wedig, Gerard J.
Format: Article
Language:English
Subjects:
Boards of trustees
Business management
Business strategies
Chief executive officers
Compensation
Corporate governance
Corporate governance Not-for-profit Hospitals Compensation
Doctors
Donations
Earnings
Executive compensation
Hospital management
Hospitals
Hypotheses
Management research
Management techniques
Non-profit organizations
Nonprofit hospitals
Nonprofit making organizations
Nonprofit organizations
Not-for-profit
Senior management
Stakeholders
Studies
Wages
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Summary:This study uses data from hospitals to test the hypothesis that management representation on nonprofit boards leads to “excessive” CEO pay, defined as compensation that exceeds the level predicted by a market wage model. We document a relatively small, but statistically significant, positive association between CEO pay and “insider” boards that include the CEO and other employees as members. Additional tests confirm that this result is not driven by endogenous board structure and that excess pay is greater in the absence of competition from for-profit hospitals. We then examine whether management board representation is associated with larger underlying agency concerns that lead to reduced donations. Our tests do not support this hypothesis but do, however, reveal a negative correlation between donations and physician representation on the board – suggesting a potential conflict between the interests of donors and non-employee physicians. Our overall evidence provides empirical support for modeling nonprofit organizations as consisting of competing stakeholders.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2010.06.008