The Impact Of Firm-Specific Characteristics On Italian CEOs Compensation

The aim of this work is to investigate the relations between Italian CEOs compensation and some specific characteristics of the Italian firms.After 2008 crisis, executive compensation has become one of the most debated topics in most western countries. Many academics have criticized pay structures that allow CEOs to earn millions of dollars, pointing out that moral hazard behaviors that brought to subprime crisis derived primary from distorted compensation structures.In Italy, due to its uncommon capitalism structure, that is characterized by the importance of family groups and the presence of government as shareholder, this topic has always been relevant not only for academics and scholars but for also for politicians or unions. Recently almost all media have agreed to label high CEOs salaries as public scandals that governments need eliminate.Although this topic has increased in importance also in Italy, Italian literature on this topic, is very far from that of other countries such as US and UK for many reasons.This paper provides a comprehensive and up-to-date description of pay practices for chief executive officers (CEOs) in Italy, including a detailed analysis of compensation strategies, targets and non-monetary bonus employed. More important, in this paper, it has been compiled a large panel data set on executive pay to analyze the relation between CEO compensation and some peculiar characteristics of the Italian market.After controlling for firm performance, the paper finds some interesting insights that in part mirror the same results of previous studies outside Italy; in other cases, the findings prove the peculiarity of the Italian economy. To investigate the main conjectures, it was employed a panel data regression that includes seven dummy variables indicating the presence of a specific characteristic in the sample.Results of this paper show to be very useful in explaining in which circumstances analysis on executive compensation in Italy brings to different conclusion when compared to anglo-saxon literature. The most important findings were that, first of all, In Italy, female CEOs earn about 500,000€ less than males, this amount of money is higher than expected, confirming that Italian capitalism suffers from significant earning gaps.Secondly, If the CEO of an Italian company is also founder of the company or owner (over 51% share), he would earn about 270,000 € more on average than a CEO who is not founder showing that founders see their company as their family asset. Third, Italian Companies in which the board is small and concentrated CEOs earn on average 467,495 € less than CEOs whose company has a large board. This result is in line with previous literature. Therefore, it can be stated that in Italy, as in other countries, the number of board members is a good proxy for corporate governance quality as it gets the same results of other papers analyzed. Fourth, thanks to a comparison of companies with 3-4 blocks (3-4 owners of company’s shares or blocks that are able to influence the company with voting rights) and companies with at most one block, it was found that in the first case CEOs earns on average 157,847 € more. One reason can be that in Italy, most of times companies are family-owned and blocks are simply divided between family members. Finally, prestigious firms’CEOs earn 1,110,000 € more than CEOs of non-prestigious firms. Results of previous papers are not in line with this finding. It is possible that differently from US, working for Italian prestigious companies becomes a loss of social status rather than an enhancement of it causing CEOs asking for higher compensation.