The experience that executive and non-executive directors accumulate by working in specific corporate positions within and across industries is one of the most important dimensions of their human capital. Previous studies document that variance in directors’ pay is primarily driven by differences in human capital accumulated over career paths. However, we know little about if and why (executive and non-executive) directors are paid differently across and within firms for what appears to be the same stock of human capital.

We address this question by focusing on a task-specific experience, namely that of M&A experience, and investigate whether this experience is priced in the remuneration contracts of directors. Acquisition experience of directors deserves attention for the following reasons. First, takeovers are complex operations that require expertise to identify an appropriate target, undertake the required due diligence, assess the potential synergistic value contribution of the target, raise the acquisition financing, and decide on the level of integration with subsequent implementation. Second, acquisitions are strategic decisions that typically require large investments and profoundly affect a company’s growth, value creation, and long-term prospects. Third, unsuccessful acquisitions are far from rare; the combined cumulative abnormal returns (CARs) of bidder and target are negative in almost half of the acquisitions and long-term performance of merged firms does in most cases not exceed the performance of matched peer companies that did not merge. Acquisition failures are often attributed to lack of experience with the takeover process at the managerial, non-executive, and firm level. Fourth, acquisitions are one of the very few strategic decisions that require intensive communication and deliberation by both executive and non-executive directors.

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