Campus News

Study finds surge in director pay following landmark Sarbanes-Oxley Act of 2002

A UGA study finds that the landmark Sarbanes-Oxley Act of 2002 and related rule changes of the major stock exchanges have dramatically altered the makeup of corporate boards, making them larger and more independent. The legislation also had the unintended effect of increasing director pay by more than 50 percent.

“Post-Sarbanes-Oxley, the demand for directors by firms is up, and the supply is down because the job is harder,” said study co-author Jeff Netter, a finance professor and holder of the C. Herman and Mary Virginia Terry Chair in Business Administration in the Terry College of Business. “So what do you find? Pay is up—pay is way up.”

The Sarbanes-Oxley Act, also referred to as SOX, was passed with near unanimous Congressional approval following the corporate scandals that brought down companies such as Enron and WorldCom. Among other things, the act and changes imposed by the New York Stock Exchange and Nasdaq sought to enhance corporate governance by promoting board independence and imposing greater responsibility and accountability on board members.

In their paper, available online at, Netter, associate professor James Linck and former doctoral student Tina Yang (now at Clemson University) call Sarbanes-Oxley “the most dramatic change to securities laws regulating corporate governance since the Great Depression.” Previous laws set disclosure requirements, they said, but SOX sets specific rules for how corporations should be governed.

To gauge the impact of the law on corporate boards, the researchers examined data on more than 8,000 firms of various sizes between 1989 and 2005.

Among other things, they found that median pay per director rose from $52,495 in 2001 to $80,646 in 2004, an increase of more than 50 percent.

The researchers also found that the higher costs of director pay are disproportionately borne by small companies. Small firms paid $3.19 in director fees per $1,000 of net sales in 2004, which is 81 cents more than they paid in 2001. Large firms, on the other hand, paid 32 cents in director fees per $1,000 of net sales, seven cents more than they paid in 2001.