Abstract
ABSTRACTThis study is intended to investigate the effect of compensation committees on executive compensation and ability. The results indicate that the quality of compensation committee strengthens the relationship between CEO compensation and ability. The results also indicate the alignment between CEO compensation and ability to be more pronounced following improvements in the quality of compensation committees in family firms, but this relationship does not existence in nonfamily firms. Furthermore, the relationship between CEO compensation and ability is found to be much stronger in the presence of better compensation committees in family firms who hire professional CEOs, but this relationship does not exist in family firms who appoint family members as the CEO. The results provide insights that may assist regulators and investors with understanding that compensation committees are not panaceas.
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