Discipline of Finance
"Ownership Concentration and CEO Pay-Performance Sensitivity: New Evidence from Privately-Held Firms"
Associate Professor Huasheng Gao, Nanyang Technological University Singapore
15th Nov 2013 11:30 am - Room 214/215 H69
In this paper we study CEO contract design employing a unique dataset on privately-held and public firm CEO annual compensation over the period 1999-2011. Compared to public firms, privately-held firms have less diffuse ownership and stronger shareholder monitoring. We show that both private and public firm CEO pay is positively and significantly related to firm accounting performance, and that the pay-performance link is much stronger in public firms. Reconciling prior mixed evidence, we show that there is an overall negative relation between ownership concentration and CEO performance-based pay, while at the low end of ownership concentration, there is a positive relation between the two. Our main findings are robust to accounting for firms' self-selection into different ownership structures and todifferent measures of firm accounting performance. We conclude that concentrated ownership structure substitutes for CEO performance-based compensation contracts.