Board Leadership Structure: Impact on CEO Pay

Carol Bowie is Head of Americas Research at Institutional Shareholder Services (ISS). This post is based on a recent publication authored by ISS U.S. Research analysts Steve Silberglied and Zachary Friesner. The complete publication is available here. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried.

Do more titles equal higher pay? It is well-documented that U.S. CEOs’ compensation, when compared to that of the average worker, has ballooned in recent decades. Past studies of the drivers of CEO pay at public companies have largely focused on firm size, number of employees, revenues, and TSR (total shareholder return) among other factors. A recent analysis examines whether and, if so, how board structure may impact CEO compensation. Specifically, the analysis tests whether a combined CEO/chairman role correlates to higher pay, and if a particular board leadership structure has a statistically significant relationship with CEO compensation. The analysis focuses on S&P 500 companies whose board structure remained relatively constant over a recent three-year period, to provide a consistent view of the trends.


CEO and board chairman are two distinct corporate roles, with the CEO responsible for managing the day-to-day operations of a company’s business and the chairman responsible for providing leadership of the board’s oversight of senior management. Many believe that this distinction is blurred when one person occupies both roles, with one example being when it comes to setting CEO pay—a key board function. While the dual role remains prevalent among S&P 500 companies, the number of U.S. companies that combine the top two titles has declined in recent years. For 2015, approximately 51 percent of S&P 500 companies combined the chair and CEO roles, down from approximately 54 percent in 2014. [1]


Data was collected as of December 2015 for each S&P 500 constituent company’s three most recent fiscal years (either FY2012-FY2014 or FY2013-FY2015). Data included average revenue for the past three fiscal years, average total CEO compensation [2] and total shareholder return (TSR) over the period , the CEO’s tenure, and whether the CEO changed during the three-year period.

The first step in the analysis was to determine the company’s board leadership structure at the time of the annual meeting for the relevant pay year. In this analysis, the chairman role can have one of four different classifications:

  1. Combined Role—the CEO of the company also acts as chairman
  2. Insider—the board chair is a current employee or officer (other than the CEO), someone who beneficially owns more than 50% of the company’s voting power, or named in the Summary Compensation Table
  3. Affiliated Outsider—designation is usually reserved for former CEOs/interim officers, non-CEO executives, immediate family members of current or former officers, transactional or professional relationships, or non-employee founders
  4. Independent Outsider—the chairman has no material connection to the company other than board service

The classification was based on the structure in place during a majority of the analysis period. In order to keep the data consistent, we omitted companies that:

  • had less than three years of TSR or compensation data;
  • had a different chair structure for each of the three years studied; or
  • did not identify a board chair.

The next step was to determine the CEO for the year and period. Many companies (120) had multiple CEOs during one of the years in the study. ISS’ approach is generally to use the CEO at the end of the fiscal year, unless the CEO was in the position for less than one month. In addition, we eliminated data for companies with co-CEOs, as their compensation structures may differ from that of a sole CEO structure.


In the final data set of 484 companies, CEO average annual compensation varied greatly when viewed according to the board leadership structure (as shown in Table 1 below and in Fig. 2 in the report’s Appendix). CEOs on boards with a separate “insider” as chair (typically an executive chairman) averaged $15.6M per year in compensation over the three-year period. That was about 13 percent higher than the next category, CEOs with a combined chair role (which averaged $13.8M), 38 percent more than CEOs with an affiliated outsider chairman (who averaged $11.3M) and 42 percent more than CEO’s with a board chairman classified as an independent outsider (who averaged approximately $11M).

Table 1: Average Annual CEO Compensation by Board Structure

Chair Role # Avg. Total Comp
Insider 63 $15,559,277
Combined 275 $13,762,454
Affiliated Outsider 31 $11,323,062
Independent Outsider 115 $10,966,456
Grand Total 484 $13,175,758

Additional regression analysis found that only two variables—company revenue and board leadership structure—showed significant correlation with the CEO pay levels, while there was no significance with CEO tenure or the company’s relative shareholder returns (compared with both the S&P index and its GICS group). The highest level of significant pay difference with respect to board leadership was found when comparing the combined role to that of the independent chair structure, which indicated that approximately $2.5 million of the total $2.8 million difference in CEO pay between those two groups could be attributed to the leadership structure.

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To download the full report, please click here.


[1] Based on ISS QuickScore data.
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[2] As defined by ISS. Includes base salary, bonuses and cash incentives paid, grant-date value of equity and stock options granted (ISS valuation), increases to pension valuation and “all other” compensation.
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