CEO Compensation : the Role and Effect of Compensation Committees

Sammanfattning: Compensation to executives is a complex and continuous topic that attracts media, academia, legislators, and not least the public. Due to the surprisingly under-examined research  topic in Sweden and inconclusive results in prior research, this paper seeks to establish how compensation committees affect CEO compensation in light of the principal-agent theory and through uni-, bi-, and multivariate analyses. Our sample consists of approximately 200 companies listed on Nasdaq OMX Stockholm between 2013 and 2015. We find that CEO compensation is higher in companies with compensation committees compared to companies without, contradicting principal-agent theory. The findings suggest that companies might install compensation committees to legitimize higher CEO compensation, or due to social and legal pressures related to their company size. Further, the results indicate that companies with a compensation committee have a positive and stronger relationship between performance and CEO compensation than companies without, supporting principal-agent theory. Nevertheless, due to low explanatory power of pay-for-performance, there are other potential explanations for CEO compensation, such as power and compensation structure.