Controlling shareholder and executive incentive structure: Canadian evidence

The presence of a controlling shareholder is a prominent feature of corporate governance. This study investigates the role of the controlling shareholder in the use of market-based incentives in executive pay. It is proposed that a closely held firm, where an individual or an entity controls a large block of voting rights, places less weight on marker-based incentives in executive pay compared to a firm with widely dispersed shareholders. This empirical study, using Canadian firms for the 1993-1997 period, provides support for this proposition. In addition, we find that firms controlled by founders and heirs as well as firms controlled by foreign entities display the feast propensity To extend market-based incentives to the firm's executives.