When is the board's two cents worth more? The relationship between board of directors' pay and firm performance under contingencies

This study examines how the board of directors' (BOD) incentives reflected by pay structure influence diverse measures of firm performance under contingencies. We integrate the insights of resource provisioning via BOD's human and relational capital (HRC) and Contingency theory to provide theoretical reasoning. Our premise is that extreme levels of market contingencies (captured by a combination of environmental uncertainty and competitive intensity) particularly motivate the board members to leverage their resources and capabilities for the benefit of the firm resulting in superior firm performance. We test our assertions in the context of publicly traded U.S. firms listed on the NYSE, AMEX, and NASDAQ exchanges from 1992 to 2019. We find that BOD incentives (reflected by total pay, long-term pay, and overpayment) have the strongest positive relationship with diverse metrics of firm performance (reflected by ROA, Tobin's Q, and innovation intensity), particularly in the presence of extreme pressures from the market contingencies. We contribute to the governance literature by advancing knowledge of BOD incentives and firm performance under contingencies.