Consistent with my hypotheses on different preferences across institutions for firms’
use of stock-based pay, I find that the percentage holdings by transient institutions, dedicated
institutions, investment advisors and pensions and endowments are positively associated with
the percentage of CEO compensation that is equity-based. These findings continue to hold
after I control for potential simultaneity bias. After controlling for potential simultaneity bias,
the percentage holdings by bank trusts and the percentage holdings by quasi-indexers are
significantly and negatively associated with the use of stock-based compensation, in contrast
to my multiple regression results. The results also suggest that institutional ownership
concentration by large institutions is inversely correlated with the percentage of CEO
compensation that is equity-based. Again, these findings support the hypothesis that to the
extent that monitoring through concentrated holdings by large institutional shareholders is possible, the demand for high-powered incentive compensation through granting equity
incentives to CEO will be less.