Abstract
This study examines how subgroup formation resulting from group faultlines can affect corporate boards’ CEO compensation-setting process. Group faultlines are hypothetical dividing lines that can split the board into subgroups based on directors’ diversity characteristics. Using a sample of US firms for the period 2007–2019, we find that if the CEO demographically belongs to the same faultline-based subgroup as corporate directors who are members of the compensation committee, strong faultlines lead to higher CEO compensation. Furthermore, we show that joint tenure of directors and the CEO strengthens this relationship. Our results are robust to endogeneity concerns and a battery of sensitivity tests. Our findings make important contributions to the literature on CEO compensation, corporate governance and faultlines, as we consider not only the existence of faultlines in the board context but also how the composition of identity-based subgroups affects CEO compensation.
| Original language | English |
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| Journal | British Journal of Management |
| DOIs | |
| Publication status | E-pub ahead of print - 2 Jul 2024 |
Bibliographical note
Publisher Copyright:© 2024 The Author(s). British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management.