We examine the economic consequences of the Ontario Securities Commission's requirement that firms disclose details of executive pay in proxy statements. Before 1993, Canadian firms only reported executive compensation in the aggregate. We predict the increased availability of compensation information will force boards of directors to compete in the managerial labor market by offering higher pay. We also predict public pressure on boards of directors to justify the level of executive pay will result in increased weight on incentive pay. The data support these hypotheses. We also document that payperformance sensitivity has increased.
The presence of a controlling shareholder is a prominent feature of corporate governance. This study investigates the role of the controlling shareholder in the use of market‐based incentives in executive pay. It is proposed that a closely held firm, where an individual or an entity controls a large block of voting rights, places less weight on market‐based incentives in executive pay compared to a firm with widely dispersed shareholders. This empirical study, using Canadian firms for the 1993‐1997 period, provides support for this proposition. In addition, we find that firms controlled by founders and heirs as well as firms controlled by foreign entities display the least propensity to extend market‐based incentives to the firm's executives.
Résumé
Un attribut remarquable dans la gestion d'une entre‐prise est la présence d'un actionnaire dominant. Cette étude examine le rôle de l'actionnaire dominant dans la manière d'utiliser des primes basées sur le marché pour la rémunération de l'exécutif. Nous proposons que, com‐parée à une société où les actionnaires sont largement dispersés, une société étroitement gérée, où un actionnaire individuel ou une entité contrǒle un grand bloc de droit de vote, donne moins de poids aux primes basées sur le marché pour la rémunération de l'exécutif Cette étude empirique, réalisée auprès de sociétés cana‐diennes pour la période 1993‐1997, fournit l'appui pour cette proposition. En outre, nous constatons que les sociétés contǒlées par des fondateurs et des héritiers aussi bien que les sociétés contrǒlées par des entités étrangères démontrent la moindre disposition à offrir des primes basées sur le marché aux cadres de l'entre‐prise.
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