Boards with a liberal bent may pay CEOs less than those with conservative political views, according to new research from the University of Washington in Seattle and the University of Notre Dame in South Bend, Ind., published in Administrative Science Quarterly.
This may be because conservative boards are more likely to link firm performance and executive pay, according to the study's findings.
"Our main idea was that conservative- and liberal-leaning boards will differ in the importance they place in the CEO position, as prior research has shown that conservatives are, by and large, more likely to attribute outcomes to person-based factors as opposed to situational factors. To the extent that conservative boards perceive that CEOs are more important to firm success, they should pay them more," Adam Wowak, PhD, assistant professor at University of Notre Dame's Mendoza College of Business and co-author of the study, told Notre Dame News.
Dr. Wowak and his co-author Abhinav Gupta, PhD, assistant professor at the University of Washington's Foster School of Business, determined the link between board political ideologies and CEO compensation by comparing a the political ideologies of members of S&P 1500 company boards with a sample of 4,000 CEOs' compensation between 1998 and 2013. Political ideologies were determined based on how directors donated.
Drs. Wowak and Gupta found the relationship between pay and political ideology strengthened when they zeroed in on the directors involved in crafting CEO pay plans.
"The contrasting belief systems that characterize liberal and conservative ideologies represent different philosophies on how to govern, an implication of which is a more heterogeneous perspective on exactly what constitutes good governance," the authors conclude.
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