Governance in non-for-profit hospitals: Effects of board members’ remuneration and expertise on CEO compensation

Although hospitals vary in terms of their governance structures, little research has focused on the effectiveness of these governance mechanisms through the study of executive contracting. Using a sample of 80 non-for-profit private hospitals in the Netherlands, I investigate whether differences in governance structures of hospitals are informative for explaining the variations in chief executive pay. After controlling for important economic determinants of CEO compensation in hospitals (i.e., type and size of the hospital, CEO type and job complexity, market conditions and performance attributes), the results suggest that CEOs on average earn more (1) when the hospital's supervisory board members receive more remuneration (a higher absolute as well as an excessive remuneration) and (2) when supervisory board members have a lower level of expertise. The findings suggest that supervisory boards are more effective in controlling agency problems (i.e., aligning CEO pay to economic conditions) when their members have more expertise, but at the same time that the monitoring function is hampered when supervisory board members receive a large (excessive) remuneration.