Institutional Monitoring and REIT CEO Compensation |
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| Authors: | Zhilan Feng Chinmoy Ghosh Fan He C F Sirmans |
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| Institution: | (1) School of Management, Union Graduate College, Schenectady, NY 12308, USA;(2) Center for Real Estate and Urban Economic Studies, School of Business, University of Connecticut, Storrs, CT 06268, USA;(3) The J. Harold and Barbara M. Chastain Eminent Scholar in Real Estate, Department of Risk Management./Insurance, Real Estate & Business Law, Florida State University, 821 Academic Way, P.O. Box 3261110, Tallahassee, FL 32306-1110, USA |
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| Abstract: | Our objective in this paper is to investigate the relationship between institutional ownership and CEO compensation structure
of REITs. Based on detailed analyses of data on institutional ownership, performance, CEO and board characteristics over the
10 year period 1998–2007, we find significant evidence that large institutions influence governance through CEO compensation—greater
institutional ownership is associated with greater emphasis on incentive-based compensation (higher pay-performance sensitivity
of CEO compensation), and higher cash and total compensation for CEOs. Further, we find that institutions are less active
when managers are performing in a superior fashion. Two important conclusions emerge from the analysis. First, similar to
unregulated firms, institutional owners do act as monitors in REITs. Broadly, this result suggests that governance is necessary
for REITs. Second, institutional investors set a high pay-performance sensitivity for CEOs, but are willing to pay higher
cash compensation to induce managers to take risk. |
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