Equity-Based Remuneration for Swedish CEO's

Abstract: This study examines the underlying reasons for observed relative differences in the use of equity-based remuneration for Swedish CEO's. Adopting a qualitative approach, the empirical foundation of the paper is interviews with key decision-makers in the area, namely directors of large public firms and institutional shareholder representatives. Descriptive data regarding the composition of CEO compensation in Swedish large cap firms between 2006-2011 is also provided. The theoretical basis of the investigation is a combination of agency theory, managerial power theory and institutionalism. Contrasting theory with previous research, secondary observations and - most importantly - a rich set of qualitative primary material we make several observations regarding how equity incentives are designed in the context of large public corporations in Sweden. We find that agency theoretic perspectives can potentially explain some observed variations in CEO equity incentive practices, but argue that economic theories must be extended to include influences from institutionalism to fully understand how compensation is constructed in reality. Among other things, we suggest that a coercive isomorphism of practice resulting from the Leo Act inhibits the use of equity-based pay.