The Empirical Research Of Determinant And Consequence Of Overlapping Audit And Compensation Committee Members

The board of directors is an elite group that faces multifaceted tasks. The board needs toimplement decisions on a wide variety of subject matter. These decisions are often delegatedto specialized sub-committees within the board. The different objectives of eachsub-committee can result in conflicting interests leading to decisions that are sub-optimal. Forexample, at times, the objectives of the compensation and the audit committee are not aligned.The objective of compensation committees is to grant executives compensation packagesreflective of their performance. Yet, these compensation packages might contain incentivesthat could motivate CEOs to influence the financial reporting process in order to reflect betterperformance, increasing the risk of poor quality financials. In contrast, the objective of auditcommittees is to oversee the quality of the financial reports and the process that leads to them.Therefore, they would favor compensation packages that reduce the risk of earningsmanipulation. These results suggest that separating the members within these committeesmight contribute to the effectiveness of board decisions.So, in this article, the listed companies in China in2010audit committee and datacompensation committee members overlap number of influence factors and members ofexecutives incentive payment of overlapping influence. The results of the study show that thesize of the board, the more the independent directors of the company’s audit committee andcompensation committee members overlap the smaller the overlap of compensation and theaudit committee. The audit committee of the scale, the size of the compensation committeeof the company’s audit committee and compensation committee members overlap the morenumber. And the audit committee and compensation committee members of the companyexecutives shares the more overlapping incentive pay less. The results show that the auditcommittee and compensation committee members against and shareholder interests overlapfor consistent executive pay plan. Namely the audit committee and compensation committeemembers of the board of directors of the separation help improve the decision-makingefficiency. These results suggest that separating the members within these committees mightcontribute to the effectiveness of board decisions.