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)
October 8, 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. Compared to public firms, privately-held firms have less diffuse ownership and stronger shareholder monitoring. 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 other 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: G34working papers series
Date posted: April 30, 2012 ; Last revised: October 9, 2014
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