In this paper we analyze the relationship between conformity to executive remuneration standards, corporate ownership, and the level and structure of CEO compensation for large European listed companies in the years 2007 and 2010.
We show that controlled corporations, either family or State owned, conform to executive remuneration standards less than widely held firms. We also show that weaker compliance is associated with lower CEO pay and more “conservative” incentive structures. We interpret this “conformity gap” from the perspective of individual firms and from a societal perspective, with the aim to contribute to frame the policy questions concerning executive pay at controlled corporations.
Different policy implications depend on whether the conformity gap reflects a lower need for managerial incentives, given the monitoring by controlling shareholders, or the latter’s willingness to extract private benefits of control. We argue in this paper that the former hypothesis seems to prevail, so that regulators should abstain from increasing the level of enforcement of executive remuneration standards.
Pritzker Professor of Law and Business
Professor of Business Law and Capital Markets Law