EC: Board compensation and firm performance: The role of “independent” board members

We use data from the Portuguese Stock Market to examine the link between firm performance, board structure, and top executive pay. We examine whether the governance structure of companies influences top executive pay. Specifically, we consider the role of nonexecutive board members as mediators of the management-shareholder relationship. Our results cast doubt on the effectiveness of independent board members. Firms with more nonexecutive board members pay higher wages to their executives. Furthermore, we find that firms with zero nonexecutive board members actually have fewer agency problems and achieve a better alignment of shareholders' and managers' interests.