FIN-02-032

Remuneration, Retention, and Reputation Incentives for Outside Directors

October 2002

David Yermack

ABSTRACT
I study incentives received by outside directors in Fortune 500 firms from compensation, replacement, and the opportunity to obtain other directorships. Changes over time in the value of equity compensation create considerable variation in director pay. Board members of the most successful firms earn millions of dollars within their first five years, a marked change in the historical pattern of rewards for directors. I also find statistically significant evidence that outside directors’ replacement and total board seats held are associated generally with company performance. Previous research had only shown these relations to apply under extreme circumstances such as financial distress.

David Yermack
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Telephone: (212) 998-0357
Fax: (212) 995-4220
Email: dyermack@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~dyermack

To download a copy of this paper click here
To request a copy of this paper click here

The Department of Finance Working Paper Series has been generously sponsored by