Differences in CEO compensation under large and small institutional ownership

摘要

I examine the influence of large and small institutional investors on different components of chief executive officer (CEO) compensation, using US data for 2006-2015. An increase in large institutional ownership reduces total pay and current incentive compensation (i.e., options, stocks, bonus pay), whereas small institutional investors lower long-term incentive pay (i.e., pension, deferred pay, stock incentive pay). These findings are consistent with managerial agency theory and the substitution of incentive pay by institutional monitoring. The effects are stronger for higher ownership levels and firms with weak governance, less financial distress, long-tenured CEOs, multiple segments, and more free cash flow.