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The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay

Administrative science quarterly, 2017-03, Vol.62 (1), p.1-30 [Peer Reviewed Journal]

Copyright © 2017 Johnson Graduate School, Cornell University ;The Author(s) 2016 ;Copyright SAGE PUBLICATIONS, INC. Mar 2017 ;ISSN: 0001-8392 ;EISSN: 1930-3815 ;DOI: 10.1177/0001839216668173 ;CODEN: ASCQAG

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  • Title:
    The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay
  • Author: Gupta, Abhinav ; Wowak, Adam J.
  • Subjects: Chief executive officers ; Committees ; Compensation ; Corporate governance ; Corporations ; Directors ; Executive compensation ; Executives (Business) ; Governance ; Ideology ; Political ideologies ; Political psychology
  • Is Part Of: Administrative science quarterly, 2017-03, Vol.62 (1), p.1-30
  • Description: We examine how directors' political ideologies, specifically the board-level average of how conservative or liberal directors are, influence boards' decisions about CEO compensation. Integrating research on corporate governance and political psychology, we theorize that conservative and liberal boards will differ in their prevailing beliefs about the appropriate amounts CEOs should be paid and, relatedly, the extent to which CEOs should be rewarded or penalized for recent firm performance. Using a donation-based index to measure the political ideologies of directors serving on S&P 1500 company boards, we test our ideas on a sample of over 4,000 CEOs from 1998 to 2013. Consistent with our predictions, we show that conservative boards pay CEOs more than liberal boards and that the relationship between recent firm performance and CEO pay is stronger for conservative boards than for liberal boards. We further demonstrate that these relationships are more pronounced when focusing specifically on the directors most heavily involved in designing CEO pay plans—members of compensation committees. By showing that board ideology manifests in CEO pay, we offer an initial demonstration of the potentially wide-ranging implications of political ideology for how corporations are governed.
  • Publisher: Los Angeles, CA: SAGE Publications
  • Language: English
  • Identifier: ISSN: 0001-8392
    EISSN: 1930-3815
    DOI: 10.1177/0001839216668173
    CODEN: ASCQAG
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