The Determinants of Compensation Committee Membership

Abstract

This study extends the work of Kesner (1988) and Bilimoria and Piderit (1994) in examining the determinants of compensation committee composition. Consistent with their findings, my results suggest that the likelihood of compensation committee membership is significantly related to director type (i.e., outside vs. inside), length of board tenure, and the number of other directorships held. In addition, my results suggest that committee membership also depends on director age, and the number of other committee memberships served. Importantly, in contrast to the predictions of agency theory, I find that committee membership is only marginally related to director affiliation, and unrelated to outside director stock ownership. Together, these results provide mixed, somewhat weak evidence that firms staff their compensation committees with directors that are likely to protect shareholder interests.