Say-on-Pay in a Context of Concentrated Ownership. Evidence from Italy

Abstract

We investigate say-on-pay (SOP) voting outcomes in a country (Italy) where ownership structure is concentrated by regressing shareholder dissent on a comprehensive set of independent variables (spanning from remuneration structure and disclosure to corporate governance), coming from the Italian Securities and Exchange Commission (CONSOB) and the Listed companies" industry association (Assonime-Emittenti Titoli) databases. Our main results may be summarized as follows: a) shareholder dissent in Italy is smaller, but still comparable with that found in the UK and the US, where ownership is disperse; b) dissent is negatively correlated with the equity stake held by the largest shareholder; we interpret this evidence as consistent with better monitoring and lower agency costs; c) dissent is, at best, only weakly related with company performance; however, it is positively correlated with CEO remuneration and negatively correlated with the level of disclosure, especially on the variable components of CEO pay; d) dissent is affected by investor activism at the company level, as proxied by the turnout of institutional investors at the AGM and by minority directors (a peculiar feature of Italian CG regulation) sitting on the board of target companies; e) finally, dissent is higher where shareholders" SOP vote is non-binding, implying that the nonbinding nature of the SOP vote does not reduce its effectiveness. 150, 190, 540 EFM Classification codes:

Say-on-Pay: Is Anybody Listening?

“…In Italy where ownership is concentrated, Belcredi et al (2014) find that shareholder dissent is smaller, but still comparable to the U.K. and the U.S. where ownership is dispersed. They also find that dissent is negatively correlated with the equity stake held by the largest shareholder, which is consistent with better monitoring and lower agency costs.…”

Influence of independent directors on the market risks of Indian banks

“…Based on an analysis of firms listed in the Shanghai and Shenzen stock exchange, Francis et al (2012) examined the role of independent directors serving on the board and they credited it with a reduction in the spreads on loan contracts. Extant research has established that independent directors cause better compliance with best practices of the firms –reducing the risk of expropriation for minority equity holders– and thus, positively influencing corporate decisions (Bianchi et al , 2011; Belcredi et al , 2014; Belcredi and Enriques, 2013). Smaili and Labelle (2015), based on an analysis of Canadian firms for the period 2001-2005, found that financial misreporting behavior tended to vary with the presence of independent directors and firms with a higher number of independent directors had lower misreporting.…”

Determinants of say on pay vote: a configurational analysis

“…Crawford et al (2017) show that firms with high pay ratios experience significantly greater shareholder dissent on say on pay votes, particularly in the highest decile of pay ratios. Belcredi et al (2014) analysed how dissent is linked to multiple variables related to the ownership and control structure, board composition, institutional investor activism, the level and the structure of remuneration and the level of remuneration policy disclosure. They found that: i) dissent is higher in widely held firms and negatively correlated with the equity stake held by the largest shareholder; ii) dissent is largely due to the presence and engagement of institutional investors; iii) dissent proves to be higher in larger firms and lower in the financial sector, where votes on the remuneration policy is binding; iv) dissent has little to do with the performance of the firm but it is positively correlated with the remuneration of the CEO.…”