Does CEO duality give more influence over executive pay to the majority or minority shareholder? (A survey of Brazil)

The purpose of this paper is to focus on comparing the influence of majority and minority shareholders on executive compensation under conditions of CEO duality, examining majority and minority shareholder influences by measuring their investment and return activity. The paper seeks to uncover how CEO duality changes the impact the two categories of shareholders have on executive compensation, especially in an emerging nation.

In total, 30 corporations out of the 70 corporations listed on the BM&F Bovespa (a Brazilian stock market) were used for the paper. Quarterly data were collected on the companies from the Datastream database. The paper conducted a moderated regression analysis on the data to determine the conditional effects of majority and minority holders’ investment and returns on executive compensation.

There are incentives for executives meeting majority shareholder objectives, but minority shareholders’ influences act as a disincentive for executives. Only the influence of blockholders by their returns is affected by the separation of the roles of CEO and Chairman. The effect is such that firms with a separation of the roles have their executives rewarded in line with increments to the returns made to blockholders, but firms that have the roles merged pay a high wage that is inconsistent with managerial performance. Finally, the majority of variation in executive pay levels can be attributed to individual company traits.

The paper’s sample is biased to firm which had publicly available data on the total compensation payable to their top executives.

Advocates of minority shareholder rights may need to exercise patience with the implementation of more formalised governance structure, as they are not providing protection for minority shareholders within the period studied.

The paper provides empirical evidence within the Brazilian context of minority shareholder effects on executive compensation and the effect of CEO duality on the relationship.