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Revista Contabilidade & Finanças

versão impressa ISSN 1519-7077versão On-line ISSN 1808-057X


BRANDAO, Isac de Freitas; VASCONCELOS, Alessandra Carvalho de; LUCA, Márcia Martins Mendes De  e  CRISOSTOMO, Vicente Lima. Composition of the board of directors and pay-performance sensitivity. Rev. contab. finanç. [online]. 2019, vol.30, n.79, pp.28-41. ISSN 1808-057X.

This article investigates, in the Brazilian capital market, the effect of the composition of the board of directors on executive compensation sensitivity to market performance, known as pay-performance sensitivity (PPS). Due to potential agency conflicts between controlling and minority shareholders and between shareholders and managers, members of the board of directors of the executive board or those appointed by the controlling shareholder might have less independence, something which may compromise monitoring effectiveness and, consequently, reduce the PPS. The purpose is contributing to understand the agency conflicts that have taken place in the Brazilian capital market and to define the configuration of the monitoring and compensation mechanisms that minimize total agency costs, maximizing shareholders’ wealth. The research results have implications for understanding the agency relations and for corporate governance in the Brazilian capital market. It is concluded that the relation between the monitoring exercised by the board of directors and executive compensation is a condition for its effectiveness as a governance mechanism in the Brazilian capital market. Data within the period 2013-2015 from 92 companies that participate in the Brazil 100 Index (IBRX 100) of the São Paulo Stock, Mercantile & Futures Exchange (BM&FBOVESPA) were analyzed. In addition to tests of difference between mean values and correlation, estimates were processed through feasible generalized least squares modeling. The independence of the board of directors vis-à-vis the controlling shareholder and the executive board may work as a corporate governance mechanism supplementing executive compensation. The results of this study indicate that the proportion of executives and independent members in the board of directors reduces the PPS, a measurement for executive compensation effectiveness made operational by the contemporary relation between increased managers’ compensation and increased company’s market value.

Palavras-chave : agency conflicts; corporate governance; board of directors; executive compensation; pay-performance sensitivity.

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