Institutional investors play a significant role in corporate governance, particularly in shaping executive compensation structures. This paper examines the relationship between institutional ownership and executive compensation, finding that institutional investors act as complements rather than substitutes for incentive compensation in mitigating the agency problem between managers and shareholders. The study reveals a significantly negative relationship between the level of executive compensation and the concentration of institutional ownership, suggesting that institutions serve a monitoring role in the shareholder-manager agency problem. Additionally, there is a significantly positive relationship between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership. These findings indicate that institutional investors enhance the effectiveness of incentive compensation in addressing agency issues. The paper also highlights the importance of institutional investors in influencing corporate governance through their preferences and trading activities, which can indirectly affect executive compensation structures. Overall, the study underscores the complementary role of institutional investors in corporate governance and their impact on executive compensation.Institutional investors play a significant role in corporate governance, particularly in shaping executive compensation structures. This paper examines the relationship between institutional ownership and executive compensation, finding that institutional investors act as complements rather than substitutes for incentive compensation in mitigating the agency problem between managers and shareholders. The study reveals a significantly negative relationship between the level of executive compensation and the concentration of institutional ownership, suggesting that institutions serve a monitoring role in the shareholder-manager agency problem. Additionally, there is a significantly positive relationship between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership. These findings indicate that institutional investors enhance the effectiveness of incentive compensation in addressing agency issues. The paper also highlights the importance of institutional investors in influencing corporate governance through their preferences and trading activities, which can indirectly affect executive compensation structures. Overall, the study underscores the complementary role of institutional investors in corporate governance and their impact on executive compensation.