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臺大管理論叢
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367
research methods, followed by the results of empirical testing in Section 5. Section 6
provides a summary and concludes the paper.
2. Background and Prior Research
2.1 Background
The rise of CEO compensation throughout the 1990s generated more and more intense
debates (Rose and Shepard, 1997; Daily, Johnson, Ellstrand, and Dalton, 1998; David,
Kochhar, and Levitas, 1998). Lowenstein (1994) commented that excessive compensation
levels had resulted in an “executive pay fiasco.” The controversy resulted partly from the
fact that the upward trend in compensation was not, generally speaking, accompanied by an
increase in firm performance. (Johnson, 1995; Gomez-Mejia and Wiseman, 1997; Klein,
1998). In response, institutional investors, particularly public pension funds, have
increasingly pressured boards to compensate CEOs partly with stocks and stock options. The
rationale is based on agency theory (Jensen and Meckling, 1976; Fama, 1980; Eisenhardt,
1989; Lynch and Williams, 2012), the basic premise of which is that the desires or goals of
the principals and the agent conflict (Eisenhardt, 1989). Putting the case into a business
context, the separation between shareholders and the managers who operate corporations
creates a potential conflict of interest that may lead managers to engage in behaviors that
deviate from shareholders’ interests. Stock-based compensation might solve this problem
because it more closely aligns the interests of managers and shareholders (Kosnik, 1990;
Rock, 1991; Ellis, 1998).
This same movement toward stock-based compensation has filtered into corporate
boardrooms (Meltzer and Ash, 1998; Dalton, Daily, Certo, and Roengpitya, 2003).
Institutional investors are now pressuring corporate boards to adopt, wholly or in part, stock-
option plans to compensate board members (Berk, Bertsch, and Higgins, 1997). Consistent
with the underlying reason for stock-based compensation for CEOs, this movement is
designed to encourage directors to have a stronger shareholder-oriented perspective. Can this
mechanism really fulfill its goal? More recent studies are working on answering this
question, focusing especially on audit committees because audit committee members are
subjected to many SOX provisions, resulting in a heavier workload and more liability
exposure than other board members (Ward, 2009). Hence, audit committee members’
compensation has gradually become more individualized in order to reflect members’ effort
and responsibilities. According to the Hay Group (2003) survey, 58% of the audit committee
chairs and 19% of the audit committee members receive higher compensation than members