In this paper we develop and test hypotheses based on agency theory and managerial capitalism to address the question of whether firms' compensation strategies are designed to motivate actions in the interests of equity holders or those of management. We examined differences in the organizational incentive structure of lower-level executives in management-controlled, owner controlled, and owner-managed firms. We found that when managers controlled the firm, there was pervasively weak incentive alignment for managers within the hierarchy and that, beyond base pay, they were able to extract compensation premiums through bonuses and long-term incentives, in spite of the fact that their firms did not demonstrate better economic performance than other types of firms. We were also able to demonstrate that equity holders pay substantial agency costs in management-controlled firms compared with owner-controlled firms. We end with a discussion of the organizational context for rationalizing executive compensation and the role of compensation consultants.