Ownership concentration, top management and board compensation

Abstract

The degree of ownership concentration may influence executive and board compensation (Bebchuk & Fried, 2003). This article analyzes this relationship. Detailed information about top management and board compensation became available starting in 2010 through new Securities Commission filings. Linear regression models applied to a sample of 315 Brazilian companies traded on the national exchange indicate a negative and statistically significant economic correlation between executive compensation and the degree of ownership concentration. Ceteris paribus, companies with a lower degree of ownership concentration pay higher compensation to top executives. Family controlled companies pay more to their chief executive, but not to the managerial team as a whole, and the compensation of directors increases with a greater proportion of control group members or their relatives on the board. There was support for the Managerial Power Hypothesis in companies with a lower degree of ownership concentration and for the extraction of private benefits in companies where it is greater.

Facing the Regulators: Noncompliance With Detailed Mandatory Compensation Disclosure in Brazil

“…Previous research documents that larger companies tend to pay larger compensations to their senior managers and directors in many countries, including Brazil (Pinto and Leal, 2013). Consistent with the hypothesis that the willingness to disclose detailed compensation information is inversely related to the level of compensation, we find that larger firms are significantly more likely to become non-compliers.…”

“…The marginal impact that new information on compensation would have on the personal safety of administrators is probably negligible because they already displayed obvious and explicit signs of wealth in a country of large income inequality such as Brazil. The Brazilian press usually discloses celebrity pay, Even though Pinto and Leal (2013) did not have the maximum compensation figures for management and the BOD, they found evidence that family controlled companies pay more to their CEO and BOD when relevant shareholders or their relatives are directors for a sample of 315 companies in 2010. It is also important to highlight that power and ownership in Brazilian corporations are still quite concentrated (Sternberg, Leal, and Bortolon, 2011).…”

“…For example, Schiehll et al (forthcoming) Pinto and Leal (2013) show that Brazilian family controlled firms tend to pay more to their CEOs and BOD members when controlling shareholders or their relatives act as directors. Schiehll et al (forthcoming) also assert that family controlled firms tend not to voluntarily disclose their executive stock options plans.…”

“…Second, top management pay in state-owned companies have been historically capped in Brazil to the highest remunerations in the executive branch of government. 6 As a result, senior management compensation in listed state-owned companies is lower than in other listed firms according to Pinto and Leal (2013) and a 2012 IBGC survey. 7…”

“…Thus, it could be that smaller firms are less inclined to comply. However, the average administrator pay in the larger Brazilian firms is greater (Pinto and Leal, 2013). It is possible that larger firms are less Firms that adopt better corporate governance practices are associated with greater valuations and more independent-minded BODs that may limit potentially damaging self-serving acts of controlling shareholders (Ammann, Oesch, and Schmid, 2011;Dahya et al 2008;Leal and Carvalhal-da-Silva, 2007).…”