Ownership Concentration and Sensitivity of Executive Pay to Accounting Performance Measures : Evidence from Publicly and Privately-Held Insurance Companies

In this paper we investigate the relation between CEO compensation and accounting performance measures in a sample of publicly- and privately-held property-liability insurance companies. We find a significant positive association between return on assets and the level of compensation for publicly-held insurers. Consistent with optimal contracting theory, we find no such relationship for privately-held insurers. We also find that the change in compensation is significantly more sensitive to the change in return on assets for publicly-held insurers than privately-held insurers. Results suggest that within privately-held firms, CEO compensation is less based on objective measures like accounting information and more on subjective measures