The level and structure of CEO compensation: Does ownership matter?

The aim of this paper is to determine whether the structure of ownership of a firm matters for determining the compensation of its CEO. To do that, we construct a database containing the structure of ownership as well as the CEO compensation for 104 French firms listed in the SBF120 index on a period spanning from 2005 to 2012. Ownership is categorized according to two main criteria: the degree of involvement and the investment horizon of shareholders. The results show that the less involved the shareholders are into the control of the company, the higher the CEO salary will be. The salary appears eventually as a measure of the degree of delegation to the CEO. Secondly, we find that bonuses are related to the time horizon of shareholders: the more short-term oriented shareholders are, the higher the weight of bonuses and the more sensitive to annual accounting and financial performance of the company they will be. Thirdly, equity-based compensation is used evenly by almost all types of shareholders, but the annual sensitivity to accounting and financial performance is higher for less involved and short-term investors. Eventually, our results show that agency theory prescriptions about CEO compensation are mostly applied by short-term and less involved shareholders.