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Remuneration, Retention, and Reputation Incentives for Outside Directors
Author(s) -
YERMACK DAVID
Publication year - 2004
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2004.00699.x
Subject(s) - remuneration , incentive , reputation , business , accounting , equity (law) , agency cost , compensation (psychology) , executive compensation , finance , agency (philosophy) , economics , corporate governance , microeconomics , shareholder , psychology , social science , sociology , political science , psychoanalysis , law , philosophy , epistemology
ABSTRACT I study incentives received by outside directors in Fortune 500 firms from compensation, replacement, and the opportunity to obtain other directorships. Previous research has only shown these relations to apply under limited circumstances such as financial distress. Together these incentive mechanisms provide directors with wealth increases of approximately 11 cents per $1,000 rise in firm value. Although smaller than the performance sensitivities of CEOs, outside directors' incentives imply a change in wealth of about $285,000 for a 1 standard deviation ( SD ) change in typical firm performance. Cross‐sectional patterns of director equity awards conform to agency and financial theories.