Journal Articles

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

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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.

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Detail Information

Series Title

Administrative Science Quarterly

Call Number

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Publisher

Thousand Oaks, CA : Sage Publications., 2017

Collation

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Language

English

ISBN/ISSN

0001-8392

Classification

NONE

Content Type

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Media Type

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Carrier Type

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Edition

Volume 62, Issue 1, March 2017; pp. 1–30

Subject(s)

Corporate governance
Political Ideology
executive compensation
upper echelons theory

Specific Detail Info

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Statement of Responsibility

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