The impact of independent directors’ compensation on the quality of supervision

One of the issues regarding independent directors’ compensation schemes concerns the effects of directly linking compensation to the company’s performance. Advocates claim that this linking will result in effective supervision and enhanced shareholder value. Opponents on the other hand argue that pure economic incentives will jeopardize the quality and independence of the director’s judgments. This study compares practices in different countries, with a focus on the US & UK, and explores the underlying theoretical reasoning.

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