Large Shareholders and CEO Performance-Based Pay: New Evidence from Privately-Held Firms
Nanyang Technological University
University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)
December 10, 2014
In this paper we study CEO contract design employing a unique dataset on privately-held and public firm CEO annual compensation over the period 1999-2011. We first show that both private and public firm CEO pay is positively and significantly related to firm accounting performance, and that the pay-performance link is much weaker in privately-held firms. We then show that the above findings are robust to accounting for firms’ self-selection into being privately-held, and a number of differences between privately-held and public firms. Reconciling prior mixed evidence, we show that there is an overall negative relation between ownership concentration and CEO performance-based pay, while at the low end of ownership concentration, there is a positive relation between the two. We conclude that the presence of large shareholders generally substitutes for CEO performance-based compensation contracts, but becomes a complement in diffusely-held firms.
Number of Pages in PDF File: 57
Keywords: CEO pay; ownership concentration; pay-performance sensitivity; privately-held firms; public firms; shareholder monitoring
JEL Classification: G34
Date posted: April 30, 2012 ; Last revised: January 13, 2015
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