Institutional investors and director pay: An empirical study of UK companies

This paper empirically examines the determinants of director pay for a sample of listed non-financial firms in the UK by focusing on the effects of institutional ownership on both director pay and pay-performance relationship. Our analysis reveals that institutional investors, as a whole, make no appreciable difference in the determination of director pay level and pay-performance relationship. However, after we divide institutions into "dedicated" and "transient" groups. We show that dedicated institutions restrain the level of director pay and strengthen pay-performance link. This is consistent with our expectation that dedicated (long-horizon) institutions are more involved in corporate governance and serve a better monitoring and disciplining role than other short-horizon institutions. © 2007 Elsevier B.V. All rights reserved