Differences in CEO compensation under large and small institutional ownership

Abstract

I examine the influence of large and small institutional investors on different components of chief executive officer (CEO) compensation, using US data for 2006–2015. An increase in large institutional ownership reduces total pay and current incentive compensation (i.e., options, stocks, bonus pay), whereas small institutional investors lower long‐term incentive pay (i.e., pension, deferred pay, stock incentive pay). These findings are consistent with managerial agency theory and the substitution of incentive pay by institutional monitoring. The effects are stronger for higher ownership levels and firms with weak governance, less financial distress, long‐tenured CEOs, multiple segments, and more free cash flow.

Corporate governance, CEO compensation, and corporate performance: evidence from India

“…However, the coefficient is not significant in the case of TC, and therefore, much cannot be established based on these estimates. In line with this, Gill (2014) and Tosun (2019) found an insignificant impact of BSZE on total pay. Alves et al (2016) also found a negative but insignificant effect of BSZE on the CEO’s total earnings.…”

“…For the purpose of the present study, CEO COMP is the dependent variable measured through cash compensation and total compensation, which includes cash as well as non-cash components of pay based on prior literature (Almazan et al , 2005; Ozkan, 2011; Sheikh et al , 2017; Tosun, 2019). The independent variable consists of two sets of variables.…”

“…Several empirical studies have also reported a negative impact of outsider's ownership on CEO COMP and, therefore, a positive moderating impact on the PPR (Core et al, 1999;Almazan et al, 2005;Ozkan, 2007;Ozkan, 2011;Schultz et al, 2013;Gill, 2014;Mazumder, 2017;Patnaik and Suar, 2020). Moreover, Tosun (2019) found that the negative influence of institutional ownership was more substantial in firms that required higher monitoring of powerful CEOs, for instance, firms associated with weak CG. However, contrary to it, some have found a positive impact of institutions' block ownership (Lin, 2005;Croci et al, 2012;Kohli, 2018;Ullah et al, 2019), suggesting that all the institutions are not equally devoted or capable of the monitoring the management effectively.…”

ETF ownership and corporate cash holdings

“…In our second set of corporate governance variables, we include a set of CEO‐related control variables considering the influence of institutional investors on the CEO (e.g., Tosun, 2020). These variables include Duality , which is an indicator that equals one if the CEO is also the chair of the board and zero otherwise; CEOTenure , which is the number of years the CEO has held that title in that firm; and CEOOwn , the fraction of outstanding shares owned by the CEO.…”

ETF Ownership and Corporate Cash Holdings

“…In our second set of corporate governance variables, we include a set of CEO-related control variables considering the influence of institutional investors on the CEO (e.g., Tosun, 2020). These variables include Duality, which is an indicator that equals one if the CEO is also the chair of the board and zero otherwise; CEOTenure, which is the number of years the CEO has held that title in that firm; and CEOOwn, the fraction of outstanding shares owned by the CEO.…”