For-Profit Board Members and Non-Profit Executive Compensation

• In Event: Nonprofit Executive Compensation and Entity Termination

Abstract

We examine the impact of the presence of executives from publicly-traded firms in non-profit boards on non-profit executive pay-for-performance and change in executive pay. Non-profit organizations present a unique setting where board members play multiple roles. Like board members in for-profits, board members in non-profits play a governance role by strengthening the link between executive pay and non-profit financial performance. Unlike board members in for-profits, board members in non-profits may directly contribute their managerial expertise, thereby reducing the need for changes in executive pay. We identify S&P1500 named executives who sit on non-profit boards in 1998-2003 and expect these executives to monitor pay-for-performance in and contribute their managerial expertise to non-profits. Consistent with the monitoring hypothesis, we find a significantly higher association between the change in revenue (and change in yield) and change in executive pay in non-profits with a for-profit board member relative to those without. Further, and consistent with the management hypothesis, we find that the change in executive pay is significantly lower in non-profits with a for-profit board member relative to those without. Results remain robust to sensitivity analyses. We conclude with a discussion of our findings and their implications for compensation design, governance policy, and research.

Authors

• Andrea Alston Roberts, University of Virginia

• Valentina L Zamora, Seattle University