Institutional Directors and Board Compensation: Spanish Evidence
Business Research Quarterly (Forthcoming)
36 Pages Posted: 25 Feb 2014 Last revised: 18 Jan 2015
Date Written: February 24, 2014
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: Suggested Citation