Variations in the Composition of Outside Director Compensation across Two Stock Exchanges: Canadian Evidence Shamsu D. Chowdhury Dalhousie University Eric Zengxiang Wang Athabasca University

Why study outside director compensation? 1. Sarbanes-Oxley Act 2002 mandates independent directors hold a majority position. 2.Canadian Coalition for Good Governance (CCGG) recommends that at least 2/3 of directors should be independent of management. 3.CEO compensation soaring requires more vigilant outside directors.

What roles do directors play? Legal perspective :Duty of loyalty to shareholders and duty of care – a director must exercise due diligence in making decisions (Monks & Minow, 2011). Management theory: Directors are agents and resources providers (Boyd, 1990/94/96, Hillman & Dalziel 2003, Hillman, Cannella &Paetzold 200)

How are the two roles played out in real world? An appropriate context is needed to answer this question. Canadian corporate world provides the ideal settings: two stock exchanges---TSX-composite versus TSX venture

The two exchanges compared TSX-C Large, established firms Eligibility criteria are more rigid (value>0.05% of the total index, trading price>CAD$1) High liquidity TSX-V Emerging small and medium-size firms Value >0.05% of the total index, but no requirement of minimum stock price No liquidity requirement

Two kinds of Roles for Outside Directors Monitoring for TSX-C Established business people As one node of director network More like a stakeholder board Control, supervising, and overseeing Berle &Means (1932), Jensen&Meckling (1976) Providing Resources for TSX-V Seek to be established May not be part of the director network Insider/business/knowledge board Providing Resources Hillman & Dalziel (2003), Pfeffer & Salancik (1978)

Hypotheses H1: Compensation/revenue ratio higher for TSX-V firms than TSX-C H2: Contingent pay proportion in TSX-V>TSX-C H3: Stock options proportion in TSX-V > TSX-C H4: TSX-V contingent pay proportion more related to firm performance than TSX-C

Outside director pay structure Non-contingent pay ( annual retainers, board meeting fees, committee fees): non- contingent pay may be paid in the form of stocks, e.g., deferred stock units Contingent pay (stock awards and stock options) Total pay: sum of the above two parts

Variables Firm performance: Tobin’s q ratio, or any others? How to measure human and social capital resources? Needs for control versus needs for resources---firm specific: Monitoring: assets, sales, number of employees, intangible assets to total assets, leverage, debt ratio, volatility Resource provision needs: Classification of board into insider/business/knowledge/stakeholder board Richness of board resource: mean of interlocks per board member Management’s newness ( an indicator for resource): top management team industry experience, team size, average age

Challenges Data Time and resources Work in progress Any ideas would be appreciated Thank you all!