Can Institutional Investors Improve the Compensation Incentive for Corporate Executives?

Since the outbreak of the credit crisis, the sky-high salary enjoyed by corporate executives has come into the limelight. As the institutional investors in China are thriving in recent years, the market has placed great expectation on their role in the improvement of corporate governance. Thus this paper devotes itself to discussing whether institutional investors in China could bring positive influence to compensation mechanism and equity incentive of corporate executives. Using data of listed companies from 2004 to 2008, this paper applies linear probability model, Probit, Logit, Tobit and OLS to conduct empirical tests on the relationship between institutional shareholdings and compensation incentive, especially equity incentive. The empirical result suggest that institutional investors in China failed to restrain the growth of equity incentive nor fixed salary of corporate executive and their improvement impact on compensation design is also far from perfect. That means there is a long way for institutional shareholders activism to strive on.