REMUNERATION, RETENTION, AND REPUTATION INCENTIVES FOR OUTSIDE DIRECTORS

Abstract

I study incentives received by outside directors in Fortune 500 firms from compensation,replacement, and the opportunity to obtain other directorships. Changes over time in the value of equity compensation create considerable variation in director pay. Board members of the most successful firms earn millions of dollars within their first five years, a marked change in the historical pattern of rewards for directors. I also find statistically significant evidence that outside directors’ replacement and total board seats held are associated generally with company performance. Previous research had only shown these relations to apply under extreme circumstances such as financial distress.