We know Sarbanes-Oxley compliance costs a lot. Just ask any public company that is subject to the strict corporate reporting law. But does Sarbox affect CEO pay? New research from the University of Colorado at Boulder Leeds School of Business says it does. Here's how:
The Sarbanes-Oxley Act of 2002 resulted in more outside directors on corporate compensation committees under the assumption that they were more impartial assessors of CEO performance. Research by Markus Fitza, a doctoral candidate at the Leeds School, shows that those outside directors are more likely to be influenced by press coverage of the CEO -- resulting in an increase in the stock options and bonus the CEO receives.
According to the study, if a CEO is featured in a major business magazine and his or her board is made up of a majority of outside directors, the CEO's stock options and bonus jump an average of $600,000. On the other hand, if the board is comprised of mostly insiders and the CEO is featured in a business publication, his or her compensation only increases by about $270,000.
Interestingly, the jump seems to occur whether the press coverage is positive or negative, and regardless of the overall performance of the company. Fitza explains the findings this way:
As CEOs appear in pictures and headlines of major business magazines, they are more likely to be perceived as legitimate and efficacious.
The study spanned eight years and evaluated 3,500 large companies.