Compensation Committees Inner Workings Revealed

How do boards determine CEO pay? A study by David De Angelis of Rice University and Yaniv Grinstein of the Graduate School of Management at Cornell addresses the mysterious (to shareholders) ways that contractual terms govern CEO compensation, and how compensation committees tie compensation to performance. The authors note that for the most part, firms disclose only the realized amounts that their CEOs receive at the end of any given year, not the terms by which the board determines the amounts, or contract details. They note that a large portion of CEO awards is given at the discretion of the board, but how exactly this portion is determined needs further research.