Do qualifications matter? New evidence on board functions and director compensation

Prior research suggests that the effectiveness of corporate directors depends on their qualifications. We investigate whether directors’ qualifications are reflected in their board functions and compensation. We find that, on average, more qualified directors receive more board functions and therefore higher pay, while CEO-appointed (“co-opted”) directors do not. However, co-opted directors receive more functions and higher pay on boards where the CEO’s influence is high. We also show that some firms award director compensation that is unrelated to board functions, and the likelihood of awarding such compensation depends on CEO power. Overall, our evidence generates new insights into how director roles and financial incentives are allocated within boards and the extent to which this allocation depends on CEO power.