Institutional Investor Preferences and Executive Compensation

Research Handbook on Executive Pay, edited by J. Hill and R. Thomas, Edward Elgar Publishing Ltd

European Banking Center Discussion Paper No. 2012-002

CentER Working Paper Series No. 2012-004

23 Pages Posted: 13 Sep 2011 Last revised: 2 Aug 2012

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: January 5, 2012

Abstract

In this paper, we investigate the attitudes of institutional investors, such as hedge funds, insurance companies, mutual funds and pension funds, towards a key corporate governance mechanism, namely executive compensation. We document the preferences they have about both the level and structure of executive compensation. Our analysis takes a comparative approach as we ask investors to reveal their preferences both for firms in the U.S. and in The Netherlands. Our analysis further sheds light on who should decide on executive pay, thereby contributing to the recent debate on shareholder involvement in executive pay. Finally, we examine their views on the most important and largest component of executive pay, executive stock options, and investigate what preferences they have when it comes to the design of such options.

Keywords: Executive Compensation, Institutional Investors, Corporate Governance

JEL Classification: G34

Suggested Citation

McCahery, Joseph A. and Sautner, Zacharias, Institutional Investor Preferences and Executive Compensation (January 5, 2012). Research Handbook on Executive Pay, edited by J. Hill and R. Thomas, Edward Elgar Publishing Ltd; European Banking Center Discussion Paper No. 2012-002; CentER Working Paper Series No. 2012-004. Available at SSRN: https://ssrn.com/abstract=1926223 or http://dx.doi.org/10.2139/ssrn.1926223

Joseph A. McCahery (Contact Author)

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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