Is the Market for Directors Competitive? New Evidence on Director Compensation

While executive compensation has been studied extensively, relatively little is known about the compensation of outside directors. We attempt to fill this gap by studying the determinants of outside director compensation using a dataset of over 57,000 board positions from 2006 to 2010. We show that compensation of outside directors is substantial and varies significantly across board members, even within the same firm. We find little evidence that this variation in pay is explained by insider connections that are unrelated to a director’s duties. Instead, outside director compensation is related to workload, qualifications and experience. Our findings are consistent with outside director compensation being determined in a competitive market.

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