Executive compensation and regulation imposed corporate governance: evidence from the California non-profit Integrity Act (2004)

This study focuses on the impact of the California Non-Profit Integrity Act (2004) on executive compensation costs in affected nonprofit organizations. We find that, for affected organizations, executive compensation costs during post-regulation periods have gone up in comparison to control groups of comparable nonprofits that are not affected by the Act. Moreover, we find a relative deterioration in pay performance sensitivity for affected nonprofits. We do not find evidence to suggest that the observed increase in compensation is more pronounced for executives who were likely underpaid during the pre-Act period. Our findings thus raise questions with respect to the efficacy of the provisions of the Act aimed at ensuring that executive compensation is ?just and reasonable? and draw attention to some unintended and costly consequences of regulatory attempts at improving governance.