Paying the separate chairman

The latest topic in corporate governance is the separation of the chairman and CEO positions. Given such interest in the separate chairman position, it is important to evaluate what the appropriate compensation package should be for this job. The pay package communicates what value the board places on the chairman position. The pay packages of companies that had a separate chairman from 1988 to 1992 were studied. In 18 of 34 companies, the separate chairman position was held by the individual who previously held both the chairman and CEO roles simultaneously - the insider. Compensation for the inside chairman was found to be significantly higher than for the other types of separate chairman in the sample. In 16 of the 34 companies, chairmen were selected from outside of the company; a few were former company or parent company employees. A wide variance in pay practice was observed in this group. Several predictions are offered for chairman pay in the future, including greater use of stock compensation.