Executive Compensation in Danish Privately Held Firms

Ali Safa Hassan & Jonas Rokne Schjøtt

Student thesis: Master thesis


Most studies that examine executive pay, have based its research on data from publicly listed U.S firms. As these only compose a fraction of all firms, considerable research remains to understand how privately held firms structure executive pay. Literature in this field is scarce, mainly due to the lack of transparency. It remains uncertain if the empirical facts derived from U.S publicly listed firms, also, explains executive pay in Danish privately held firms. First, privately held firms have features that deviates to the dispersed ownership, and corporate governance functions that recognise the public firm. Second, we believe, that cultural, and geographical dissimilarities may play out on how pay is structured. This paper addresses the emptiness in the literature by examining the determinants of executive compensation in Danish privately held firms. Correspondingly, we provide new findings on the structure of the incentive pay packages. We derive our hypothesis and expectations on agency theory. Especially, our sample only includes firms where the CEO is not a significant shareholder, as higher agency costs are likely to prevail in these firms. The separation of ownership and control should thus by theoretical means, provide a reason to formulate incentive pay schemes. Our study contributes to the literature in several ways. To our knowledge, the study is a pilot on executive compensation in Danish class B firms. We find that class C and B firms in our sample, offer incentive pay favouring cash bonuses. Accounting-based metrics are widely used in all objectively determined incentive schemes, whilst especially class B firms also take use of non-financial metrics. Previously ignored by research, our study also suggest that market-based measures are used whenever a firm step towards a full or partial sale. Despite levels of managerial ownership, we discover that executives still receive incentive pay. Our results display that the determinants ownership concentration, firm size have a positive effect on whether a CEO receives incentive pay. On the contrary, older CEOs tends to receive fixed salary. Contradictory to previous research we do not find any significance for determinants such as CEO ownership, and CEO tenure.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2021
Number of pages111
SupervisorsMorten Holm