An important task for boards is to oversee executive compensation. The effectiveness of boards in carrying out this monitoring responsibility, however, is widely debated. In the paper, The Effect of Disclosure on the Pay-Performance Relation, forthcoming in the Journal of Accounting and Public Policy, we argue that disclosure improves board effectiveness. First and as a general point, disclosure can improve transparency, which facilitates the monitoring of management and hence causes managers to act more in the interests of shareholders. Such monitoring is potentially valuable since managers will not always act in the best interest of shareholders.
Editor’s Note: The following post comes to us from Gus DeFranco and Ole-Kristian Hope, both of the Rotman School of Management at the University of Toronto, and Stephannie Larocque of the Department of Accounting at the Mendoza College of Business, University of Notre Dame.