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CEO Compensation, Family Control and Institutional Investors in Continental Europe

44 Pages Posted: 23 Oct 2010 Last revised: 19 Sep 2011

Ettore Croci

Catholic University of the Sacred Heart of Milan

Halit Gonenc

University of Groningen - Faculty of Economics and Business

Neslihan Ozkan

University of Bristol - School of Economics, Finance and Management, UK

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Date Written: October 21, 2010

Abstract

This paper investigates the impact of family control and institutional investors on CEO pay packages in Continental Europe, using a large data set of 915 listed firms with 4,045 firm-year observations from 14 countries over the period 2001-2008. We find that family control curbs the level of CEO total compensation which includes both cash and equity-based compensation. This effect is particularly accentuated in firms with family CEOs, indicating that controlling families do not use CEO compensation to expropriate wealth from minority shareholders. We also find that the impact of institutional ownership on CEO compensation varies depending on whether institutional investors are foreign or domestic. Our results show that domestic institutional investors play an active role in determining the level of CEO compensation by increasing the pay-for-performance sensitivity, while foreign institutional ownership increase CEO total compensation without aligning pay with performance. We also provide evidence that institutional investors partially counterbalance the negative effect of family control on CEO compensation, especially in family firms with professional CEOs, and increase the level of CEO total compensation.

Keywords: CEO Compensation, Family Firms, Institutional Investors, Europe

JEL Classification: G34

Suggested Citation

Croci, Ettore and Gonenc, Halit and Ozkan, Neslihan, CEO Compensation, Family Control and Institutional Investors in Continental Europe (October 21, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI; Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1695317 or http://dx.doi.org/10.2139/ssrn.1695317

Ettore Croci (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Halit Gonenc

University of Groningen - Faculty of Economics and Business ( email )

P.O. Box 100
Groningen, 9700 AV
Netherlands
+31 0 50 363 4237 (Phone)
+31 0 50 363 3850 (Fax)

Neslihan Ozkan

University of Bristol - School of Economics, Finance and Management, UK ( email )

United States

HOME PAGE: http://www.bristol.ac.uk/accounting/staff/ozkan.html

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