Shareholders' Say on Pay: Does it Create Value?

Cai, Jie; Walkling, Ralph A.

doi:10.2139/ssrn.1101881

Cited by 119 publications

(164 citation statements)

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“…Turning to mandatory say-on-pay votes, the House of Representatives'passage of the U.S. say-on-pay bill was associated with positive event-study returns, but only for …rms with high abnormal CEO pay and low wealth-performance sensitivity (Cai and Walkling, 2011). In the U.K., Ferri and Maber (2013) …nd positive event-study returns to the introduction of say-onpay legislation for …rms with high abnormal CEO pay, particularly if this was combined with poor recent performance.…”

Section: Potential Areas For Reformmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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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

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Section: Potential Areas For Reformmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

View full text Add to dashboard Cite

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“…A primary effect is to rely more heavily on performance-based compensation, thereby tightening the link between executive compensation and performance, motivating executives to generate profits more efficiently, as well as increasing their accountability for poor performance (Cai and Walkling 2011;Cuñat et al 2015). Consistent with this notion, Burns and Minnick (2013) demonstrate that, following the receipt of SOP proposals, firms tend to adjust the structure of executive compensation and improve the pay-for-performance sensitivity.…”

Section: Sop and Pay-for-performance Sensitivitymentioning

confidence: 99%

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

et al. 2016

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Abstract"Say on pay" legislation has been introduced in several countries but Australia's version, namely the "two-strikes" rule, is unique in that it empowers shareholders to vote on a board spill if the compensation report of a public company receives 25% or more dissenting votes for two consecutive years. We test the proposition that the "two strikes" rule has increased directors' accountability beyond executive pay because it has substantially lowered the cost to activists of organizing sufficient votes to threaten managers with a board spill. Consistent with this expectation, we find Australian firms respond to negative say-on-pay votes by curbing excessive CEO pay, reducing the growth rate of pay and changing the pay mix. In addition, the results suggest that the market regards negative SOP votes as a value-destroying signal since there is a negative market reaction, lower valuation and long-run underperformance. We also find an increase in CEO turnover but directors do not seem to bear reputational costs through the loss of outside directorships. The findings provide important insights to investors, company directors and regulators.

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“…Analogue to the UK in the US, the results for firms with high abnormal executive compensation and low pay-for-performance sensitivity are positive. However, the market reacts negatively to labour sponsored SoP vote requests and positively when they are defeated (Cai and Walkling 2011). Evidence in Germany implies a negative reaction to the introduction of SoP (Hitz and Müller-Bloch 2015).…”

Section: Sop Evolution Theoretical Background and Survey Of Existingmentioning

confidence: 99%