Majority Ownership and Chief Executive Compensation

Abstract

In this chapter, we provide the first empirical study of the effects of differing types of majority ownership, including employee ownership, on executive compensation. By investigating the case of Estonia, we also extend the range of geographical coverage of studies of the determinants of executive compensations to the case of Estonia.

Although previous research finds that the type of ownership affects CEO pay, our new panel data, and the exceptional configurations of ownership that prevailed in Estonia during early transition, enable us to construct unusual measures of majority ownership.

Findings indicate that an economically significant determinant of CEO pay is ownership both in state versus privatized firms and in different types of private firms. In firms with majority ownership by employees, pay is about 15% less than in state-owned firms, other things equal. CEO pay is also positively related to size and seldom related to performance although size elasticities are much smaller than those estimated in other studies, mainly for advanced western countries.

Findings provide more general support than previously for the varying importance of principal–agency relationships across firm types and the views that privatization and employee ownership have imposed strong discipline on the level of CEO compensation.

Citation

Jones, D.C. and Mygind, N. (2011), "Majority Ownership and Chief Executive Compensation", DeVaro, J. (Ed.) Advances in the Economic Analysis of Participatory and Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 115-141. https://doi.org/10.1108/S0885-3339(2011)0000012009