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The determinants of board compensation in SOEs: An application to Italian public utilities

Author

Listed:
  • Fabrizio Erbetta

    () (Department of Business Management and Environment, University of Eastern Piedmont)

  • Giovanni Fraquelli

    () (Department of Business Management and Environment, University of Eastern Piedmont)

  • Anna menozzi

    () (Department of Business Management and Environment,, University of Eastern Piedmont)

  • Davide Vannoni

    () (Department of Economics and Public Finance "G. Prato", University of Torino)

Abstract

This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed for the years 1994-2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.

Suggested Citation

  • Fabrizio Erbetta & Giovanni Fraquelli & Anna menozzi & Davide Vannoni, 2011. "The determinants of board compensation in SOEs: An application to Italian public utilities," Working papers 24, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  • Handle: RePEc:tur:wpaper:24
    as

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    File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/tur/wpaper/n24.pdf
    File Function: First version, 2011
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    References listed on IDEAS

    as
    1. Cambini Carlo & Filippini Massimo & Piacenza Massimiliano & Vannoni Davide, 2011. "Corporatization and Firm Performance: Evidence from Publicly-Provided Local Utilities," Review of Law & Economics, De Gruyter, vol. 7(1), pages 191-213, July.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    3. Anna Menozzi & María Gutiérrez Urtiaga & Davide Vannoni, 2012. "Board composition, political connections, and performance in state-owned enterprises," Industrial and Corporate Change, Oxford University Press, vol. 21(3), pages 671-698, June.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "Director Compensation and CEO Bargaining Power in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 225-251, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    board compensation; board composition; politicians; local public utilities;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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