REMUNERATION OF INDEPENDENT DIRECTORS: DETERMINANTS AND POLICY IMPLICATIONS

Taking advantage of a unique database on Italian Corporate Governance, we study the determinants of remuneration paid to individual non-executive directors (NEDs) and, in particular, to independent directors (INEDs). Our results on a database covering around 16,000 positions/year for non-executive directors in Italian listed firms (over a 9-year period) show that: 1) Remuneration is strongly affected by firm characteristics, in particular by firm size. Independent directors are paid less than gray directors; the gap between the two categories is, however, gradually closing, due to lower additional compensation being paid to gray directors in subsidiaries. Contrary to what happens in other countries, NED remuneration remained quite stable: a small increase is observable only for independent directors; 2) NED remuneration is influenced by the functions performed by individual directors within the board. On the contrary, individual directors‟ characteristics have little or no impact. We find evidence of a gender pay gap among independent directors in less recent years; however, this gap has gradually disappeared in conjunction with the increasing number and role of female directors, following the adoption of gender quotas; 3) The relationship between independent directors‟ pay and some variables of interest has changed over time: this is true not only for gender but also for Tobin‟s Q (a proxy for the benefits from monitoring) and for the number of positions held in other companies. The changes we observe are apparently consistent with the market for directors‟ pay in Italy becoming more mature after the introduction of Say-on-Pay and other regulation favouring investor activism. This is also consistent with a positive role played by both institutional investors and their representatives sitting on the board of listed companies after the introduction of said legislation.