This paper examines the relationship between institutional investors and executive compensation, focusing on how the presence of institutional investors affects the structure and performance sensitivity of executive pay. The authors hypothesize that institutional investors play a monitoring role in corporate governance, particularly in controlling executive compensation. They find a significant negative correlation between the level of executive compensation and the concentration of institutional ownership, suggesting that institutions act as a check on excessive compensation. Additionally, they find a positive correlation between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership, indicating that institutions complement incentive compensation in mitigating agency problems. The study uses data from the Standard & Poor's ExecuComp database and controls for various firm characteristics to robustly support these findings. The results suggest that institutional investors are more likely to act as a complement rather than a substitute to incentive compensation in improving corporate governance.This paper examines the relationship between institutional investors and executive compensation, focusing on how the presence of institutional investors affects the structure and performance sensitivity of executive pay. The authors hypothesize that institutional investors play a monitoring role in corporate governance, particularly in controlling executive compensation. They find a significant negative correlation between the level of executive compensation and the concentration of institutional ownership, suggesting that institutions act as a check on excessive compensation. Additionally, they find a positive correlation between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership, indicating that institutions complement incentive compensation in mitigating agency problems. The study uses data from the Standard & Poor's ExecuComp database and controls for various firm characteristics to robustly support these findings. The results suggest that institutional investors are more likely to act as a complement rather than a substitute to incentive compensation in improving corporate governance.