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Blockholder monitoring and the efficiency of pay-performance benchmarking

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  • Kim, Kyonghee

Abstract

In this article I examine how the performance sensitivity of CEO compensation is related to the level and turnover of outside block ownership. Separating firm performance into firm-specific (Skill) and exogenous (Luck) components, I find that pay sensitivity to Luck increases with blockholder turnover, whereas pay sensitivity to Skill increases with blockholding size. Furthermore, when blockholder turnover is higher, CEO pay increases more with positive Luck but does not decrease as much with negative Luck; also, excess CEO compensation is larger. Thus, the rent accruing to CEOs via asymmetric pay sensitivity to Luck is partly explained by short investment horizons of large shareholders.

Suggested Citation

  • Kim, Kyonghee, 2010. "Blockholder monitoring and the efficiency of pay-performance benchmarking," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 748-766, December.
  • Handle: RePEc:eee:corfin:v:16:y:2010:i:5:p:748-766
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    References listed on IDEAS

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    Cited by:

    1. Emma Schultz & Gloria Y. Tian & Garry Twite, 2013. "Corporate Governance and the CEO Pay–Performance Link: Australian Evidence," International Review of Finance, International Review of Finance Ltd., vol. 13(4), pages 447-472, December.
    2. Danny Miller & Isabelle Le Breton-Miller & Alessandro Minichilli & Guido Corbetta & Daniel Pittino, 2014. "When do Non-Family CEOs Outperform in Family Firms? Agency and Behavioural Agency Perspectives," Journal of Management Studies, Wiley Blackwell, vol. 51(4), pages 547-572, June.
    3. repec:kap:jbuset:v:147:y:2018:i:4:d:10.1007_s10551-015-2997-2 is not listed on IDEAS
    4. Allgood, Sam & Farrell, Kathleen A. & Kamal, Rashiqa, 2012. "Do boards know when they hire a CEO that is a good match? Evidence from initial compensation," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1051-1064.
    5. Pindado, Julio & Requejo, Ignacio & de la Torre, Chabela, 2011. "Family control and investment–cash flow sensitivity: Empirical evidence from the Euro zone," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1389-1409.
    6. Clayton, Matthew J. & Jorgensen, Bjorn N., 2011. "Corporate equity ownership, investment, and product market relationships," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1377-1388.
    7. Cao, Jerry & Pan, Xiaofei & Tian, Gary, 2011. "Disproportional ownership structure and pay-performance relationship: Evidence from China's listed firms," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 541-554, June.

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