Board Structure and CEO Compensation: Evidence From the 1999 Financial Services Modernization Act (Gramm–Leach–Bliley Act)

This study investigates the changing relationship between the board structure and chief executive officer (CEO) compensation of US commercial banks due to an exogenous shock, that is, the Gramm–Leach–Bliley Act (GLBA) of 1999. We hypothesize that the board structure of banks will change toward a more efficient role mitigating the interest conflicts between shareholders and managers and thus affect CEO compensation after the passage of the act. Our empirical results show that, after the passage of the act, bank boards significantly decreased their size, separated the dual roles of CEO and board chair, and increased board meeting frequencies and director ownership. Better-governed boards, however, are more willing to compensate CEOs after the passage of the GLBA. Our study complements the literature on the relationship between board function and CEO compensation.