Monitoring by busy compensation committee members

Abstract

This study examines whether members who serve on multiple compensation committees (i.e., busy compensation committee members) are effective monitors, as reflected in their ability to curb excess executive compensation. We propose that by serving on compensation committees of different firms, busy members are more likely to garner rich knowledge and sophisticated skills that are required to effectively monitor the compensation-setting process. Based on a sample consisting of Taiwanese public firms over the period 2011–2019, our empirical analyses indicate that the percentage of busy members on the compensation committee significantly and negatively relates to excess executive compensation. The overpayment reducing effect of busy members is weakened by low attendance rate, and is strengthened by long-term experience. Taken together, a clear practical implication is that firms seeking to inhibit overpayment problem should consider recruiting busy members to sit on the compensation committee.