Stepping in, stepping out: the dynamic relationship between interlocking directors and CEO compensation

Combining literature on CEO pay-setting process, board processes, and group dynamics, this study explores the influence of interlocking director changes on subsequent CEO pay raises. Particularly, I focus on two types of interlocking director changes—the decrease and increase in the number of interlocking directors—and consider their different impact on CEO pay raises. Furthermore, I hypothesize that the relationship between interlocking director changes and subsequent CEO pay raises is contingent on the CEO relative pay (of the changing interlocked firms vs. the focal firm), female board representation, and the interaction between CEO relative pay and female board representation. Based on 4,510 firm-year observations from 702 S&P firms over 10 years (2009-2018), I found that interlocking director decrease is negatively associated with subsequent CEO pay raises, yet there is no significant impact of interlocking director increase on subsequent CEO pay raises. The findings also support the moderating roles of the CEO relative pay and female board representation. This study provides a dynamic view for understanding the link between interlocking directors and CEO compensation as well as supports the value of female board representation.M.S.Includes bibliographical reference