CEO Compensation, Family Control, and Institutional Investors in Continental Europe

This paper investigates the impact of family control and institutional investors on CEO pay packages in Continental Europe, using a large data set of 754 listed firms with 3,731 firm-year observations from 14 countries over the period 2001-2008. We find that family control curbs the level of CEO total and cash compensation, and the fraction of equity-based compensation. Moreover, we do not observe a significant effect of family control on the excess level of total and cash compensation. This evidence indicates that controlling families do not use CEO compensation to expropriate wealth from minority shareholders. We also show that institutional ownership is associated with higher levels of CEO cash and total compensation in Continental Europe, especially in family firms. We further find that foreign institutional investors have a positive and significant impact on the level of CEO compensation. Finally, our results indicate that institutional investors affect the CEO pay structure: they increase the use of equity-based compensation in both family and non-family firms.