The Effect of Institutional Investors on the Level and Mix of Ceo Compensation

Abstract

This study investigated the influence of institutional investors on CEO compensation policy. Results suggest that institutional owners that have only an investment relationship with a firm influence compensation in accordance with shareholder preferences to (1) lower its level and (2) increase the proportion of long-term incentives in total compensation. However, institutions that depend on a firm for their own business are not able to influence compensation in this manner. This study extends prior research by supporting the viewpoint that the nature of ownership in a firm is an important determinant of CEO compensation.