CEO Compensation and Large Shareholders: Evidence from Emerging Markets ∗ Francisco Gallego † and Borja Larrain ‡ January 11, 2012 Abstract Using a novel data base for three emerging markets we study large shareholders and their relationship with professional managers. This is important to understand wage inequality and returns to high-level human capital since concentrated ownership is prevalent in developing countries. We find a compensation premium of about 30 log points for professional (not controller-related) CEOs working in firms controlled by a family compared to firms controlled by other large shareholders. The premium cannot be explained away by standard firm characteristics, observable executive skills (e.g., education or tenure), or the compensation of the CEO in her former job. The premium comes mostly from family firms with absent founders and when sons are involved. ∗ We thank Matías Braun, Marcelo Donelli, Carola Frydman, Jeanne Lafortune, Andrei Shleifer, Marcos Singer, and seminar participants at the Pontificia Universidad Católica de Chile, Universidad Adolfo Ibáñez, LACEA 2010 meetings, and SECHI 2010 meetings for comments and suggestions. We particularly thank Alfonso Mujica and José Barroilhet from Spencer Stuart’s Santiago office for making available the data we use in this study, and for many conversations about the market for professional managers. The executives’ identity was removed from the dataset in order to protect their privacy. Luis Beltrán, Felipe González, Andrés Vicencio, and especially Christian Salas provided outstanding research assistance. Gallego acknowledges financial support from Fondecyt (Grant No. 1100623). Larrain acknowledges partial financial support from the Programa Bicentenario de Ciencia y Tecnología in the context of Concurso de Anillos de Investigación en Ciencias Sociales (code SOC-04), and also from Grupo Security through Finance UC. A previous version of this paper circulated with the title "The Compensation of Professional Managers in Family Firms." The usual disclaimer applies. † Pontificia Universidad Católica de Chile, Instituto de Economía, e-mail: fgallego@uc.cl ‡ Pontificia Universidad Católica de Chile, Escuela de Administración and Finance UC, e-mail: borja.larrain@uc.cl 1