Executive remuneration standards and the “conformity gap” at controlled corporations

In this paper we analyze the relationship between conformity to executive\r\nremuneration standards, corporate ownership, and the level and structure of\r\nCEO compensation for large European listed companies in the years 2007\r\nand 2010. We show that controlled corporations conform to executive\r\nremuneration standards less than widely held firms. We also show that\r\nweaker compliance is associated with lower CEO pay and more cash-based\r\nincentive structures. We interpret this “conformity gap” from the perspective\r\nof individual firms and from a societal perspective, with the aim to contribute\r\nto frame the policy questions concerning executive pay at controlled\r\ncorporations. Different policy implications depend on whether the conformity\r\ngap reflects a lower need for managerial incentives, given the monitoring by\r\ncontrolling shareholders, or the latter’s willingness to extract private benefits\r\nof control. We argue in this paper that the former hypothesis prevails, so that\r\nregulators should abstain from increasing the level of enforcement of\r\nexecutive remuneration standards.