Institutional Directors and Board Compensation: Spanish Evidence

Business Research Quarterly (Forthcoming)

36 Pages Posted: 25 Feb 2014 Last revised: 18 Jan 2015

See all articles by Félix J. López-Iturriaga

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Emma García‐Meca

Universidad Politécnica de Cartagena

Fernando Tejerina Gaite

University of Valladolid

Date Written: February 24, 2014

Abstract

Although the role of institutional investors as shareholders has been widely studied, the literature provides little evidence on the role of institutional investors as directors. Therefore, this article analyzes the influence of directors who represent institutional investors in three aspects of compensation policies: level of compensation, composition, and performance sensitivity. Consistent with the view that institutional investors’ relationship with the firm depends on whether the institutional investor has business ties with the firm, we differentiate pressure-sensitive directors (i.e., with business links) and pressure-resistant directors (i.e., without business links). Our results show that pressure-resistant directors decrease the total compensation and the fixed proportion and increase the variable proportion of total remuneration and the pay-for-performance sensitivity. These findings suggest that pressure-sensitive directors develop compensation schemes that are more consistent with shareholders’ interests and that align the incentives of directors and shareholders. Conversely, pressure-sensitive directors increase the total compensation and the fixed proportion and decrease the variable proportion of total remuneration and the pay-for-performance sensitivity. These results are consistent with the view that institutional investors are not a homogeneous group and that pressure-resistant directors fulfill a more thorough monitoring role.

Keywords: corporate governance, institutional investors, board of directors, Spain, remuneration, compensation

JEL Classification: G23; G32; M12

Suggested Citation

Lopez-Iturriaga, Felix Javier and García-Meca, Emma and Tejerina Gaite, Fernando, Institutional Directors and Board Compensation: Spanish Evidence (February 24, 2014). Business Research Quarterly (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2400391 or http://dx.doi.org/10.2139/ssrn.2400391

Felix Javier Lopez-Iturriaga (Contact Author)

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Emma García-Meca

Universidad Politécnica de Cartagena ( email )

Departamento Economia Financiera y Contabilidad
Cartagena, Murcia 30201
Spain

Fernando Tejerina Gaite

University of Valladolid ( email )

8 C/Plaza de Santa Cruz
47002 Valladolid, Valladolid 47002
Spain

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