The Influence of Legal Nature on Executive Compensation in Brazil

We analyzed the influence of legal nature (publicly traded or privately held companies) on executive compensation. For this purpose, we used data from the Annual Social Information Report (RAIS) of Brazilian publicly traded and privately held companies for the year 2019, totalling 15,397 observations. Through various econometric approaches, it was observed that legal nature has an impact on executive compensation. Using ordinary least squares regression, it was found that executives in publicly traded companies receive, on average, about 30% more than their counterparts in privately held companies. This difference was also evident in estimations using quantile regression, re-centred influence function (RIF)-regression and Oaxaca-RIF. However, the difference diminishes at higher levels of compensation. By means of the Oaxaca–Blinder decomposition, the average compensation difference due to legal nature was found to be 26.9% in favour of publicly traded companies. Of this difference, the largest portion is attributed to discretionary factors. When analyzing an economic, institutional and cultural context different from what is commonly researched, this research contributes to the discussion of results in emerging economies and provides new insights that can be valuable in the development of standards encouraging compensation linked to value creation for the company, as well as promoting greater transparency regarding the reasons behind high remuneration.