Management Ownership and Firm Compensation Policy: Evidence from Converting Savings and Loan Associations

We examine the relationship between management ownership and compensation for a sample of savings and loan associations which have recently converted to stock organizations. Previous expense preference literature has indicated that the stock form of organization lessens the potential for non-value-maximizing behavior that may be manifested in the payment of employee compensation. Our results confirm those of Mørck, et al, which suggest that support for the convergence of interests hypothesis (management acts in the interests of the owners) and the entrenchment hypotheses (management acts in its own interests) is conditional on the magnitude of management ownership in the firm.