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The Impact of Corporate Governance on Executive Compensation


  • Bank of Montreal Financial Group Faculty Fellow. I would like to thank an anonymous referee, John Doukas (the Editor), Chris Anderson, Murray Bryant, Luis Navas, Colette Southam and seminar participants at Dalhousie University, the Southwestern Ontario Finance Symposium, and the European Financial Management Symposium on Corporate Governance & Shareholder Activism in Milan for helpful comments on earlier versions of the paper. Financial support from the Institute of Corporate Directors Blue Ribbon Commission is gratefully acknowledged. Umber Gosain, Alec Miller and Andy Sun provided excellent research assistance. All remaining errors are my own. Please address all correspondence to Stephen Sapp Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7.


This paper examines the relationship between the compensation of the top five executives at a set of over 400 publicly listed Canadian firms and various internal and external corporate governance-related factors. The media is full of stories suggesting a relationship between large executive compensation packages and failures in governance at various levels within organisations, but there exists little formal analysis of many of these relationships. Our analysis provides empirical evidence supporting some of these assertions, refuting others and documenting new relationships. We find that variances in internal governance related to differences across firms in the characteristics of the CEO, compensation committee and board of directors do influence both the level and composition of executive compensation, especially for the CEO. Considering external measures of corporate governance, we find that different types of shareholders and competitive environments impact executive compensation. We do not find that either the internal or external governance characteristics dominate.