Differences in pay between owner and non-owner CEOs: Evidence from Israel

In a sample of 124 publicly traded Israeli firms in 1994-2001 we find that CEOs who belong to the family or business group that owns most of the firm shares (“owner CEOs”) receive significantly (about 50%) higher pay than professional CEOs who do not belong to the control group (“non-owner CEOs”). Owner CEOs' pay performance sensitivity is also (insignificantly) lower than that of non-owner CEOs. These findings are most consistent with the view that owner CEOs exploit the firm and extract private benefits in the form of inflated pay. Among owner CEOs, we do not find any significant differences in pay between CEOs in family firms and CEOs in firms controlled by business partners.