Executive Compensation and Agency Effects

Abstract

Abstract The separation of ownership from control in large corporations can cause agency problems. This study analyzes the effects of the dispersion of corporate ownership on the compensation of the top executives of Fortune 500 companies. The effects are estimated across the executive hierarchy and for different components of the compensation package in contrast to more limited previous studies. The results indicate that there is a significant agency effect on executive pay, though the magnitude is small relative to company size. The effects are greatest for the most liquid form of remuneration, salaries, and are nonuniform across executive categories, with the strongest effect found for the Chairman of the Board.