Does the ownership of CEOs affect their compensation? : a study of the link between ownership structures and CEO pay in unlisted Norwegian shipping and sea transport companies.

Abstract

This master’s thesis studies the link between ownership structures and CEO compensation in unlisted Norwegian shipping and sea transport firms. The objective is to examine differences in total pay and pay-performance sensitivity between owner and non-owner CEOs, and we test the predictions of CEO pay from two theories; agency theory and the managerial power perspective. We find evidence that non-owner CEOs receive significantly higher compensation than owners, between 39 % and 47 % on the average. Furthermore, compensation decreases with the ownership percentage, which indicates that ownership shares can be used as a substitute for cash compensation and to reduce agency problems. There is some evidence that firm performance, measured by EBIT growth, affect the compensation of non-owners. This indicates that non-owners have a higher pay-performance sensitivity than owners. Overall, predictions from agency theory fits our data better than the managerial power perspective. To get additional insights into the dynamics of top executive compensation, we surveyed the CEOs in the dataset. The survey reveals that non-owners to a greater extent receive performance-based pay compared to owners. Most non-owners believe the compensation gap is due to the owners’ possibility of replacing their salary with dividend payments. However, owners mostly claim that they rarely or never pay out dividends instead of salary. They believe that inner motivation, cautiousness, and commitment to the firm can explain the pay gap. There are some findings from our survey that highlights differences in motivation. Owners score somewhat higher on intrinsic motivation, while non-owners are more motivated by extrinsic factors.