CEO Compensation and Government Ownership

24 Pages Posted: 22 Mar 2019

See all articles by Ginka Borisova

Ginka Borisova

Iowa State University - Department of Finance

Jesus M. Salas

Lehigh University

Andrey Zagorchev

Rhodes College - Department of Business

Date Written: March 2019


Research Question/Issue. Despite the benefits of privatization (i.e., divestiture of government‐owned enterprises), governments still own substantial stakes in economically important firms. Given public concern about excessive compensation and frequent government responses, this paper compares the level and structure of CEO compensation in privatized firms, including those still partially owned by governments, to firms never owned by the government.

Research Findings/Insights. Using a multinational sample of firms, we find that privatized firms have lower total CEO compensation than private firms never owned by governments. CEO equity‐linked wealth in privatized firms is less sensitive to stock performance, and equity compensation is negatively related to government ownership stakes. Privatized companies engage in less risk‐taking than nonprivatized companies, suggesting that government risk aversion could explain differences in CEO compensation.

Theoretical/Academic Implications. This study finds that the role government ownership plays in the level and structure of executive compensation is broadly consistent with pay regulations governments periodically impose. It provides empirical support for the argument that government owners are risk‐averse and associated with lower equity‐linked executive pay, which discourages CEO risk‐taking.

Practitioner/Policy Implications. This study encourages corporate boards to consider the degree of government involvement in their firms when setting CEO compensation packages and policies. Government concerns about excessive compensation may require boards to find other ways to incentivize CEOs, particularly given the weaker governance linked to state‐influenced firms. Additionally, governments should analyze their influences on CEO compensation, and how these can affect performance, when considering their ownership stakes in public companies.

Keywords: corporate governance, contracting theory, government ownership, national privatization

Suggested Citation

Borisova, Ginka and Salas, Jesus M. and Zagorchev, Andrey, CEO Compensation and Government Ownership (March 2019). Corporate Governance: An International Review, Vol. 27, Issue 2, pp. 120-143, 2019, Available at SSRN: or

Ginka Borisova

Iowa State University - Department of Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Jesus M. Salas (Contact Author)

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3238 (Phone)


Andrey Zagorchev

Rhodes College - Department of Business ( email )

United States

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