Determinants and consequences of executive compensation-related shareholder activism and say-on-pay votes: A literature review and research agenda

Abstract

This systematic literature review analyses the determinants and consequences of executive compensation-related shareholder activism and say-on-pay (SOP) votes. The review covers 71 empirical articles published between January 1995 and September 2017. The studies are reviewed within an empirical research framework that separates the reasons for shareholder activism and SOP voting dissent as input factor on the one hand and the consequences of shareholder pressure as output factor on the other. This procedure identifies the five most important groups of factors in the literature: the level and structure of executive compensation, firm characteristics, corporate governance mechanisms, shareholder structure and stakeholders. Of these, executive compensation and firm characteristics are the most frequently examined. Further examination reveals that the key assumptions of neoclassical principal agent theory for both managers and shareholders are not always consistent with recent empirical evidence. First, behavioral aspects (such as the perception of fairness) influence compensation activism and SOP votes. Second, non-financial interests significantly moderate shareholder activism. Insofar, we recommend integrating behavioral and non-financial aspects into the existing research. The implications are analyzed, and new directions for further research are discussed by proposing 19 different research questions.

Gender diversity and say‐on‐pay: Evidence from UK remuneration committees

“…This voting approach is known as the "say-on-pay," a tool which can be used by shareholders to express dissent about the recommendations made in remuneration reports (Mallin, 2016;Mangen & Magnan, 2012). Since then, many research studies have investigated the antecedents and the consequences of say-on-pay voting (for recent reviews, see Stathopoulos & Voulgaris, 2015;Obermann & Velte, 2018). Among some of these antecedents that most affect shareholder dissent via say-on-pay voting are higher CEO remuneration, firm performance and firm size, and weak boardroom governance (Alissa, 2015;Conyon, 2016;Conyon & Sadler, 2010;Ferri & Maber, 2013;Gregory-Smith, Thompson, & Wright, 2014).…”

“…In this paper, we focus on the effect of women on the remuneration committee as previous studies have shown women are more likely to be effective monitors (Adams & Ferreira, 2009;Carter, Simkins, & Simpson, 2003), more ethical (Cumming, Leung, & Rui, 2015), and more likely to reduce information asymmetry (Abad, Lucas-Pérez, Minguez-Vera, & Yagüe, 2017;Srinidhi, Gul, & Tsui, 2011). In addition, there are presently limited studies on the effect of women on the remuneration committee (Kirsch, 2017;Obermann & Velte, 2018). Scholars have called for additional studies on the role of women on the remuneration committee and then on executive remuneration, including CEO pay with the aim to understand if they help to avoid suboptimal pay, and hence reduce shareholders' dissent (Filatotchev & Wright, 2017;Kirsch, 2017;Strobl, Rama, & Mishra, 2016).…”

“…At the same time, prior work shows that boards do not appear to respond to shareholder dissatisfaction systematically; however, they do respond selectively and swiftly (Alissa, 2015). Furthermore, previous studies identify not only outcomes at firm level but also several other outcomes that dissenting shareholders generate at investor and environmental level (for recent reviews, see Goranova & Ryan, 2014;Obermann & Velte, 2018).…”

Institutional ownership, environmental, social, and governance performance and disclosure – a review on empirical quantitative research

“…In a second step, and as in other related literature reviews (Obermann & Velte, 2018), the keywords are applied to five major academic journal databases -ISI Web of Science, ScienceDirect, SAGE Journals, Emerald Insight, and Wiley Online Library, Google Scholar. For the field of business economics, only peer-reviewed journal articles in the English language were considered.…”

“…Given the current relevance of the topic, the following paper synthesizes and discusses empirical research on the impact of IO on ESG and vice versa, as also other ownership types (e.g., managerial ownership) and other stakeholder groups (e.g., customers, suppliers, employees) can foster the ESG activities of a firm. Given the dominance of empirical research on institutional investors (Obermann & Velte, 2018) and its huge power, IO's concentration is justified in this literature review. Therefore, empirical-quantitative (archival) articles are included that analyze 1) the impact of IO on ESG performance and disclosure, 2) the impact of ESG performance and disclosure on IO as a bi-directional relationship, and 3) the moderating and mediating influence of IO on the firms' financial consequences of ESG.…”