Abstract
This study examines the relation between changes in non-executive director compensation and changes in CEO compensation. Consistent with norms of reciprocity, we report a positive relationship between changes in director pay and change in CEO pay for those firms where the CEO is also a board member. The results support the view that when a CEO who is also a board member validates increases in director pay, directors respond in kind, approving increases in CEO pay. This reciprocity does not benefit shareholders by improving subsequent firm value. We report that excess change in CEO and director compensation reduces subsequent change in firm value for firms where the CEO is a board member.
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