The Relation Between Private Ownership of Equity and Executive Compensation

Abstract

This study compares the executive compensation practices of firms with private equity and public debt to the compensation practices of firms with public equity and public debt. From 1992-2005, in a sample of 77 firms, it was found that privately-owned companies pay less equity compensation and less total compensation. Three explanations for observed differences in equity compensation are proposed and tested, and it was found that results consistent with an explanation that privately-held firms pay executives less equity due to inherent difficulties in valuing and/or liquidating equity.