A Comparison of CEO Pay-Performance Sensitivity in Privately-Held and Public Firms

55 Pages Posted: 30 Apr 2012 Last revised: 11 Sep 2015

See all articles by Huasheng Gao

Huasheng Gao

Fanhai International School of Finance, Fudan University

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Date Written: September 10, 2015

Abstract

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 CEOs in public firms are paid 30% more than CEOs in comparable privately-held firms. We further 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 important differences between privately-held and public firms, including CEO ownership, employee stock ownership, stock liquidity, discipline from the takeover market, and the availability of different performance measures. Overall, our results support the view that concentrated ownership substitutes for CEO performance-based compensation contracts.

Keywords: CEO pay; ownership concentration; pay-performance sensitivity; privately-held firms

JEL Classification: G34

Suggested Citation

Gao, Huasheng and Li, Kai, A Comparison of CEO Pay-Performance Sensitivity in Privately-Held and Public Firms (September 10, 2015). Available at SSRN: https://ssrn.com/abstract=2047997 or http://dx.doi.org/10.2139/ssrn.2047997

Huasheng Gao (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Kai Li

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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