The Effect of the Sarbanes-Oxley Act on CEO Pay for Luck

According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control - get paid for luck. This paper shows that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with the governance regulations subsequently introduced by stock exchanges, affects CEO pay structure.