How institutional directors on boards affect CEO compensation

Treball de Final de Grau en Finances i Comptabilitat. Codi: FC1049. Curs acdèmic 2015-2016The aim of this paper is to study the impact of institutional directors on boards on CEO compensation. Concretely, we investigate the influence of institutional directors as a whole group, differentiating them into institutional directors with business ties with the business where they sit on boards (pressure-sensitive directors) and into institutional directors without business relationships (pressure-resistant directors). We hypothesise that there is a positive or negative association between institutional, pressure- sensitive and pressure-resistant directors on boards and CEO compensation, respectively. Our results give evidence that CEO compensation decrease with a higher presence on boards of institutional directors and pressure-resistant directors, while pressure-sensitive directors on boards do not affect. Consequently, these conclusions support the idea that institutional directors on boards cannot be considered a homogeneous group and so, they play an important role in management control and payment regulations