Board Incentives and Executive Compensation: Evidence from Taiwan’s Electronic Industry

Abstract

This study examines the association between board-level incentive structures and executive compensation, focusing on director compensation as a key element of the corporate governance environment. Using panel data from publicly listed electronic firms in Taiwan from 2012 to 2024, we investigate how director compensation is associated with executive pay within firms over time. Drawing on agency theory, we argue that director compensation reflects the broader incentive climate faced by board members and may be associated with executive pay-setting processes. To examine this relationship, we employ panel data analysis to account for firm-specific characteristics and unobserved heterogeneity. The results reveal a robust positive relationship between director compensation and executive compensation, suggesting that higher board-level incentives are associated with higher executive pay. Furthermore, earnings-based performance measures play a more important role than equity-based measures in compensation design, highlighting the importance of accounting-based indicators in this context. This study contributes to the governance literature by demonstrating that director compensation is strongly associated with executive pay outcomes rather than merely a governance cost. The findings offer practical implications for compensation committee practices, incentive alignment, and organizational governance in emerging market contexts.