Adding female board members or more board committees does not limit growth in chief executive compensation, as some corporate governance advocates have hoped, a new study shows.
In fact, the study by professors Charles O'Reilly of the Stanford Graduate School of Business and Brian Main of the University of Edinburgh found CEOs did even better when such efforts to improve corporate governance were made.
"Contrary to some recommendations for 'good governance,' we find that having more committees of the board and more female directors results in higher CEO compensation," the study said.
The study also shows CEO compensation is more related to a company's size, as measured by revenue, than CEO performance.
Appointing more independent boards would not result in lower pay, as they come under the psychological pressures of social influence, the study said.
Based on CEO compensation at 306 companies in 2003, the study found that a CEO who also chairs the board tends to be paid more, a finding many governance advocates say is a reason CEOs should be kept at "arms length" by board members.
But the arms-length approach has shown only modest results in keeping CEO pay in check, said the study, presented at the annual Academy of Management meeting this week in Atlanta.
The Sarbanes-Oxley Act of 2002 aimed to curb the perceived failure of corporate governance in the collapse of WorldCom, Enron and others by encouraging boards to act independently of CEO influence and putting limits on insiders serving on boards.
The thinking behind the act and other governance efforts was that companies with stronger shareholder rights would be better governed and perform better.
But an arms-length relationship with CEOs results means a CEO gets less advice from a board, which presumably was appointed with experts and highly qualified people, O'Reilly said on August 15 in an interview. "There is not a lot of research demonstrating the positive effects of having board expertise, and I think that's a big gap in what we understand," O'Reilly said.