Abstract
The role of company directors in setting new CEO compensation has become more complex in recent times with the creation of a new CEO labor market. Directors can potentially utilize their relationships with prospective CEOs to determine new CEO compensation in the interests of investors. Conversely, new outsider CEOs can potentially be empowered by their relationships with directors to negotiate compensation in their own interests and against that of investors. This study explores this issue through examining the impact of board/CEO ties in 1,173 outsider CEO successions on a range of fixed and short- and long-term, performance-related CEO compensation ratios across a range of developed and developing markets where there are varying approaches to corporate governance. Results show that new outsider CEOs in the United States and other Anglo-American institutional environments are able to leverage their relationships with directors to restructure compensation in their own interests and against those of investors.
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