The Influence of Institutional Investors Over Executive Remuneration in the UK
75 Pages Posted: 24 Jan 2008
Date Written: December 14, 2007
This paper analyses the relationship between institutional shareholdings and CEO cash-based remuneration. Uniquely to this field of research we specifically model the different elements of cash-based remuneration separately to account for the timing differences relating to their award and performance criteria. We document 5 significant empirical regularities. First, controlling for firm size, the presence of a large institutional shareholding, or high concentration of institutional shareholdings, significantly reduces the magnitude of salary and bonuses. Second, institutional shareholdings significantly increase the positive relationship between bonus remuneration and firm performance. Third, the presence of a large institutional shareholding, or high concentration of institutional shareholdings, reduces the rates of increase in salary, benefits and bonuses. Fourth, the magnitude of salary and benefits are negatively related to firm performance. This implies that CEOs are taking their contracted salary regardless of firm performance. Fifth, the standard practice of modelling salary and bonuses together produces misleading results. We demonstrate that as salary and bonuses are payments for different reasons and relate to different time periods over which performance is measured they should be modelled separately.
Keywords: Executive Remuneration, Institutional Investors
JEL Classification: G32
Suggested Citation: Suggested Citation