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Directors are Rewarded for Past Failure and Future Success


Corresponding author: Hsiu-I Ting, Department of Money and Banking, College of Finance and Banking, National Kaohsiung First University of Science and Technology, No. 2, Jhuoyue Rd., Nantzih District, Kaohsiung City 81164, Taiwan. Tel: +886-7-6011-000 ext 3126, Fax: +886-7-6011-039, email:


The compensation of boards of directors and supervisors is higher in firms with lower earnings, than that of boards of directors and supervisors in corresponding industries with higher earnings. Using firm-level panel data of Taiwan Stock Exchange listed firms over the period 1999–2008, this study investigates the reasons for this phenomenon of rewarding failure. The result provides evidence that rewarding failure is due to an asymmetric reward scheme and human capital retention, and it encourages the board to make aggressive decisions.