Say on Pay Votes and CEO Compensation: Evidence from the UK*

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

Section: Potential Areas For Reformmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

“…One way to approach SoP is to analyse the market reaction when the introduction of a SoP regime is first introduced. In the UK, markets viewed the introduction of SoP positive, for firms with weak penalties for poor performance (Ferri and Maber 2009). Analogue to the UK in the US, the results for firms with high abnormal executive compensation and low pay-for-performance sensitivity are positive.…”

Section: Sop Evolution Theoretical Background and Survey Of Existingmentioning

confidence: 99%

Non-Mandatory Say on Pay Votes and AGM Participation: Evidence from Germany

Powell

Rapp

2015

“…For example, in the wake of the corporate scandals at the beginning of this century like the Enron affair, reforms were advocated and changes were legislated. 6 Examples are the structure of the board (Wintoki, 2007); shareholders' right to a say on pay (Ferri andMaber, 2012, andCuñat, Gine, andGuadalupe, 2012), and gender quotas for board members 7 (Ahern andDittmar, 2012, andBohren andStaubo, 2013).…”

mentioning

confidence: 99%

What is the Relation (If Any) between a Firm's Corporate Governance Arrangements and Its Financial Performance?

Wessels

Wansbeek

2013

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper presents estimates from a latent variables model of the relation between corporate governance and financial performance. We use data on large US corporations to estimate the correlation, conditional on the firms' investment opportunity set, between governance and performance. We find that this correlation is statistically speaking zero. This result is consistent with the "equilibrium view" (Demsetz, 1983) in which firms optimize corporate governance arrangements subject to the constraints imposed by the investment opportunity set, such that observed corporate governance arrangements and firm performance are uncorrelated. The intuition behind this statement is that, if governance and performance were correlated, performance could be improved by making changes to the governance arrangements, which is at odds with an equilibrium situation. Terms of use: Documents inJEL-Code: C380, G340, L200, M520.