CEO incentive-based compensation, investment opportunities and institutional heterogeneity

Abstract: Using international data (15,786 obs.) from industrial companies from 28 countries over an 11-year period (2003–2014), this research contributes to the area of institutional heterogeneity, CEO compensation and investment opportunities. More precisely, we use three perspectives in order to investigate whether investment opportunities explain CEO compensation structures. We compare (i) U.S. and non-U.S. firms, (ii) Common law and Civil law firms, and (iii) firms operating with similar cultural characteristics. Overall, after controlling for firm governance and board characteristics, we find that investment and growth opportunities in terms of book-to-market ratio, research and development (R&D), and capital expenditures (CAPEX) explain the percentage equity and non-salary CEO compensation. These findings suggest that firms with higher information asymmetries associated with their growth opportunities pay CEOs higher incentive-based compensation.