The Effect of the Board of Directors’ Quality on Compensation Fees

Abstract

This paper examines the effect of the quality of the board of directors on the directors’ compensation. The quality of the board of 204 Canadian firms is defined by adopting a scoring mechanism published by the Globe and Mail’s ‘Report on Business’. It is assessed based on four criteria: board composition, shareholding compensation, shareholder rights and disclosure. Using univariate and multivariate statistical models, our results reveal that shareholding rights, shareholding compensation and disclosure are the significant components in explaining the level of compensation. However, the composition of the board does not have any impact.