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The essay about agency theory and BoDs prompted us to look into BoD compensation. In the essay, we assert that BoDs basically compensate themselves, imposing a significant agency cost on the investors they represent.
We wonder about how BoDs actually accomplish this, what investors can do about it, and how changing BoD comp might address this agency problem and potentially increase company value. We've come down on the side of increasing shareholder authority over BoD comp, through a bylaw requiring a shareholder vote on director comp packages.
We investors might use this tactic in some instances, say where we need additional leverage over a stubborn BoD. However, similar to other good corp gov efforts, we have no evidence that it systematically increases shareholder value. We refrain from suggesting all companies adopt it routinely.
We connect BoD comp to agency theory, and explain the bylaw amendment idea, in a current blog post.
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