We study how directors’ reputational concerns influence executive compensation and the use of camouflaged forms of pay. We show that, in order to signal their independence to investors, boards lower managers’ pay, but may also pay managers in hidden ways or structure compensation inefficiently. We also show that independent boards are more likely to make use of hidden compensation than manager-friendly boards. We apply our model to study the costs and benefits of greater pay transparency and of measures, such as say-on-pay initiatives, that increase boards’ accountability to shareholders.