Differences in CEO Compensation Under Institutional and Large Shareholder Ownership

Using the most recent data available, I examine the influence of large shareholders and institutional investors on different components of CEO compensation. Increased large shareholder ownership reduces total pay and current elements of incentive compensation, i.e. option, stock, and bonus pay, while institutional investors lower long-term incentive pay, i.e. pension, deferred pay, stock incentive pay. These findings are consistent with the managerial agency theory and the substitution of incentive pay by institutional monitoring. The results are more pronounced for higher levels of ownership, and firms with weak governance, smaller boards, less financial distress, tenured CEO, multiple segments, and free cash-flow