Institutional Ownership and CEO Compensation
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2017-07-19
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en
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Abstract
This research is aimed at finding the effects of institutional ownership on the compensation of managers. In doing so, this research focuses on the distinction between active and passive institutions. Active institutions are more prone to engage in monitoring and interfering in the structure of compensation of managers, as passive institutions lack motivation to do so, or have other relations with the firm that prevent them from engaging in such activities. Furthermore, a distinction between the different components of compensation is made, where option grants, long-term incentive plans (LTIPs), restricted stock grants, and bonuses are all separately considered and modelled. Based on some prior research and news indications, the period of 1999 until 2005 has been chosen, where for a sample of S&P500 firms there are clear results suggesting that preferences exist among active institutions to change the structure of compensation for CEOs. Specifically, compensation components that provide less motivation to manipulate earnings are found to be preferred by active institutional shareholders, where the total amount of compensation appears to be reduced by these shareholders as well. Furthermore, complex compensation such as option grants is being partially replaced by less complex compensation components such as bonuses.
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Faculteit der Managementwetenschappen