CEO Monitoring and board effectiveness - Resolving CEO compensation issue

Similar to the Security Exchange Commission (SEC), the French Stock Exchange Authority (AMF) issued new board requirements to enhance manager control after financial scandals (2008-2009). This study investigates the relation between corporate governance and CEO pay levels after taking into acc²ount unobservable firm effects, time-varying industry effects, size, and performance. Using a sample of 290 firm-years observations from SBF 120 Index companies (2009-2011), we find that CEO pay is positively associated to (1) board size, (2) the number of board meetings and (3) compensation committee independence. Consistent with Guthrie et al. (2012) findings, our results suggest serious doubt on the effectiveness of new independence board requirement in constraining CEO compensation as suggested by the managerial power hypothesis.