Abstract
Moving beyond the three roles of board of directors, this study proposes the affective and emotional impact of board on strategic decisions. We propose that a non-CEO executive’s death will raise board’s awareness of mortality and make them more compassionate towards CEOs. Board will thus be more likely to reduce CEO’s job demands in the pay-setting process and the final compensation. We further propose that because in the negotiation process like CEO pay-setting a more powerful party will be more likely to express his or her emotions while a less powerful party will hide the emotions and affects, the main effect is contingent upon the power dynamics between CEO and board. Such effect will be strengthened if CEO has more power indicated by CEO duality and firm performance, and weakened if board is more independent. A longitudinal analysis of 1,834 firms with 8,945 firm-year observations generally support our propositions. Our study contributes significantly to literature of board roles, CEO compensation, and corporate leaders’ death.
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