Outside director compensation and firm performance

Abstract Compensation given to outside directors has come under increasing scrutiny. However, little empirical work exists which examines outside director compensation. A study of more than 225 major corporations over a five‐year period indicates that the number of board meetings and the size of the company are major factors in outside director compensation levels, while organization performance and Chief Executive Officer remuneration do not appear to be significantly related. These findings suggest that market‐driven compensation systems are the dominant form used by large organizations to pay outside directors, with a major goal being the attraction and retention of these directors.