Does CEO duality give more influence over executive pay to the majority or minority shareholder? (A survey of Brazil)

Abstract

Purpose The purpose of this paper is to focus on comparing the influence of majority and minority shareholders on executive compensation under conditions of CEO duality, examining majority and minority shareholder influences by measuring their investment and return activity. The paper seeks to uncover how CEO duality changes the impact the two categories of shareholders have on executive compensation, especially in an emerging nation. Design/methodology/approach In total, 30 corporations out of the 70 corporations listed on the BM&F Bovespa (a Brazilian stock market) were used for the paper. Quarterly data were collected on the companies from the Datastream database. The paper conducted a moderated regression analysis on the data to determine the conditional effects of majority and minority holders’ investment and returns on executive compensation. Findings There are incentives for executives meeting majority shareholder objectives, but minority shareholders’ influences act as a disincentive for executives. Only the influence of blockholders by their returns is affected by the separation of the roles of CEO and Chairman. The effect is such that firms with a separation of the roles have their executives rewarded in line with increments to the returns made to blockholders, but firms that have the roles merged pay a high wage that is inconsistent with managerial performance. Finally, the majority of variation in executive pay levels can be attributed to individual company traits. Research limitations/implications The paper’s sample is biased to firm which had publicly available data on the total compensation payable to their top executives. Practical implications Advocates of minority shareholder rights may need to exercise patience with the implementation of more formalised governance structure, as they are not providing protection for minority shareholders within the period studied. Originality/value The paper provides empirical evidence within the Brazilian context of minority shareholder effects on executive compensation and the effect of CEO duality on the relationship.

Tracing the links between executive compensation structure and firm performance: evidence from the Brazilian market

“…The authors emphasized the positive relationship between the stock-based compensation and the price-to-equity ratio, suggesting that the long-term incentive played its role in creating long-term value. Abraham and Singh (2016) found a robust positive association between executive remuneration and the growth in the rates of return of controlling shareholders. Despite the low information quality that permeates emerging markets, they are not devoid of corporate governance mechanisms, which are considered crucial to reducing agency conflicts in these types of environments (Abudy et al, 2020).…”

Executive Compensation and Performance of Companies in the Brazilian Capital Market: Evidence of Negative Relationship with Focus on the Interests of the Controlling Shareholder

“…These authors justified their results via the argument that the executive compensation in a family firm is a consequence of a family strategy to hire family members at the top of the control chain to maximize the family interest and to expropriate the company's wealth (Young et al, 2008;Faccio et al, 2001). A possible explanation for the rejection of hypothesis H4 can be related to the same explanation as hypothesis H3, that is, company pay culture and/or some other company characteristic ( BASEv.18, n.1, janeiro/março 2021Singh, 2016 and/or the Brazilian capital market characteristics and/or the organizational culture of the Brazilian public company. The comprehension of all these issues depends on future investigations, which may be conducted via qualitative or quantitative research methods or a combination.…”

“…Cohen and Lauterbach (2008) found that a CEO who belongs to the family receives significantly higher compensation than a CEO who does not belong to the controlling family group. For Abraham and Singh (2016), this behavior of executive pay is more rooted in the individual company pay culture or some other institutional company characteristic.…”

Does risk matter for executive compensation?

“…The control variables have been selected based on a detailed literature review. Prior scholars (Abraham and Singh, 2016;Benkraiem et al, 2017;Bova et al, 2015;Diasc et al, 2020;Mathew et al, 2016;Mathew et al, 2018;Pergola and Joseph, 2011;Petra and Dorata, 2008;Queiri et al, 2021) proved that the following control variables are the significant attributes for explaining corporate governance, executive compensation and their relation to risk: firm size, leverage, sector, institutional ownership, firm in loss, CEO's tenure, nationality, age and ownership, international board of directors (BOD), the board size, independent BOD, risk committee and CEO duality ( Because of the panel data set and the significant results of the Hausman test, fixed effect regression is the most appropriate technique for the models in this paper (Baltagi, 2012). Thus, the fixed firm-year effect regression analysis with robust standard errors was used to test the hypotheses.…”