Politically-connected boards and the structure of chief executive officer compensation packages in Taiwanese firms

Abstract

This paper examines the relationship between the level of political connection of the board and chief executive officer (CEO) equity-based compensation. Using a sample of Taiwanese firms, the paper provides evidence that politically connected boards grant a lower proportion of equity-based compensation to CEOs. Political intervention can reduce the proportion of equity-based compensation and, thereby, can have negative consequences for the alignment between the interests of CEOs and shareholders in firms. The findings obtained in this paper could be useful to policy-makers in emerging economies, where there is wide scope for political intervention. © 2010 Korean Securities Association.