The Influence of Non-Executive Director Control and Rewards on CEO Remuneration: Australian Evidence

Abstract

The study examined whether non-executive director (NED) control and remuneration impact on the CEO pay decision. NED control was represented by three measures. The first, the existence of a majority of non-executive directors on the board of directors; second, the instalment of a nomination committee to facilitate the employment of properly qualified, independent directors to the board; and third, participation of NEDs in the company?s operation as evidenced by attendance at regularly scheduled board meetings. This study finds no evidence that these variables have a significant impact upon the determination of CEO pay levels. The second aspect of the study explored the impact of NED remuneration (including an equity component) on the setting of CEO pay levels. It finds evidence that these variables have a significant influence upon the determination of CEO pay levels, with NED equity holdings apparently acting as restraint on CEO cash pay, and alternatively, NED pay (retainer) increasing in line with CEO cash pay.