Manuscript Type Review Research Question/Issue This study focuses on the role of Say‐on‐Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder “voice.” Initially introduced in the UK, Say‐on‐Pay has subsequently been adopted in a large number of countries and it has recently received significant attention from regulators, media, and the general public. The purpose of this study is to review prior literature related to Say‐on‐Pay and its impact on firm value and corporate decision making. Research Findings/Insights Our study highlights the interdisciplinary nature of research on Say‐on‐Pay. We also shed light on conceptual gaps and empirical discrepancies in prior studies, indicating that many questions linked to Say‐on‐Pay and its importance for the executive pay‐setting process remain largely unanswered. Theoretical/Academic Implications At a theoretical level, we highlight potential areas for development of the existing theoretical framework for Say‐on‐Pay, which is at present rather limited and primarily influenced by agency theory. At an empirical level, we propose a substantial number of avenues for fruitful future research on this topic. Practitioner/Policy Implications In the light of recent proposals for extending the role of Say‐on‐Pay within the corporate governance framework, our findings are particularly relevant to regulators. More thought is needed about changing its nature from advisory to binding, as the degree of its effectiveness and the dynamics of the voting process are still unclear. Our study could also be informative for the media and the general public, especially given the increasing attention afforded to Say‐on‐Pay.

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Shareholder investment horizons have a significant impact on say‐on‐pay voting patterns. Short‐term investors are more likely to avoid expressing opinion on executive pay proposals by casting an abstaining vote. They vote against board proposals on pay only in cases where the CEO already receives excessive pay levels. In contrast, long‐term investors typically cast favourable votes. According to our findings, this is due to effective monitoring rather than collusion with the management. Overall, investor heterogeneity in terms of investment horizons helps explain say‐on‐pay voting, in particular the low levels of say‐on‐pay dissent, which have recently raised questions over the efficiency of this corporate governance mechanism.

Manuscript Type: EmpiricalResearch Question/Issue: This paper provides new evidence on the effect of compensation consultants on CEO pay. Research Findings/Insights: We produce new evidence on the managerial power approach (MPA) to corporate governance by examining the influence of compensation consultants on CEO pay structures and the decision to hire a compensation consultant in the UK. We find evidence that is not consistent with the MPA. Contrary to the MPA predictions, we find that the positive effect of consultants on CEO pay levels mainly stems from an increase in equity-based compensation. We show that consultants exert a negative influence on basic (cash) pay. In addition, we illustrate that the choice of hiring a consultant can be explained by economic determinants, e.g., firm governance characteristics. The existence of a powerful CEO does not increase the likelihood of hiring a pay consultant. The results are robust to several model specifications and tests for selection bias. Theoretical/Academic Implications: The results indicate that compensation consultants may have a positive effect on the structure of CEO pay since they encourage incentive-based compensation. We also show that economic determinants, rather than CEO power, explain the decision to hire compensation consultants. Overall, our results cast doubts on the conclusions of the MPA regarding the role of compensation consultants. Their role can be better explained within the optimal contracting framework. Practitioner/Policy Implications: This study offers insights to the positive effect the hiring of a pay consultant could have towards the design of a CEO pay contract.

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