Say-on-Pay: Is Anybody Listening?

Abstract

There is an ongoing debate about whether executives receive excessive compensation, and if so, how to control it. Several countries have instituted say-on-pay rules (shareholders' right to vote on executive compensation) to reduce excessive compensation. However, determining the effectiveness of say-on-pay is difficult because its tenets vary by country due to political, institutional, cultural, economic, and social factors. Policy issues like say-on-pay are complex, ill-structured problems without definitive assumptions, theories, or solutions. Existing say-on-pay research is inconclusive, since some studies find no change in CEO compensation around its adoption, whereas other studies show that say-on-pay lowers CEO pay or changes its composition. This paper chronicles the history of say-on-pay, compares its implementation by groups (e.g. shareholders-initiated versus legislated and binding versus advisory), discusses the complexities of using say-on-pay to address excessive executive compensation, and recommends future research directions.

Mind the gap: CEO–employee pay ratios and shareholder say‐on‐pay votes

“…Outside of the United States, SOP voting is conducted in a number of different countries including Australia, most of Europe, Latin America, and East Asia, among others (see Lieder & Fischer, 2011; Mason, Medinets, & Palmon, 2016; Stathopoulos & Voulgaris, 2015, for reviews of international SOP rule implementations). SOP voting has been shown to influence compensation including reductions in pay (Al‐Issa, 2015; Ertimur, Ferri, & Muslu, 2011), increased use of pay‐for‐performance compensation (Collins, Marquardt, & Niu, 2019), and decreases in the percentage of total pay captured by CEOs (Correa & Lel, 2016).…”

Determinants of say on pay vote: a configurational analysis

“…Say on pay votes are central to corporate governance because they can potentially promote shareholder activism and give owners more voice, and thus affect boardroom pay arrangements. The relationship between say on pay and quality of governance, however, is weak (Obermann and Velte 2018) and the results are inconclusive, as much about the determinants as about the effects (Mason et al 2017;Cuñat et al 2015). The paper contributes its finding that two configurations of boards are related to voting dissent, and that jointly analysing the interactions allows us to think more carefully about the structure of boards.…”

The impact of Say-on-Pay votes on firms' strategic policies: Insights from the Anglo-Saxon economy

“…In the UK, for example, the type of vote is binding , in Australia advisory two-strike rule , and in Canada, voluntary & advisory (Stathopoulos and Voulgaris, 2016). Mason et al (2016) argue that a major factor that hinders the success of SOP research is the 'many forms' in which it is implemented. Furthermore, their evidence comes from cross-sectional regression, which will not capture the longer-term impact of SOP votes on firm strategies.…”

“…Second , we emphasise the international context that allows the researchers to compare different forms of SOP, which Mason et al (2016) argue are vital determinants of research outcomes . Furthermore, our evidence comes after the subsequent changes in SOP legislation, notably in Australia and the UK.…”