The Economic Consequences of Proxy Advisor Say-on-Pay Voting Policies

Larcker, David F.; McCall, Allan L.; Ormazábal, Gaizka

doi:10.2139/ssrn.2101453

Cited by 23 publications

(15 citation statements)

References 17 publications

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“…Overall, subject to the usual caveats of event studies (e.g., anticipated events), we find no evidence that PAs’ analyses of SOP plans lead to superior compensation practices. At the same time, we do not find a negative impact, in contrast to Larcker, McCall, and Ormazabal [], who document a negative stock price reaction to changes in compensation practices ahead of the 2011 SOP vote (presumably made to avoid a negative recommendation and an adverse vote) . Combined with our other findings in the paper, the picture that emerges is that, at least with respect to SOP, rather than identifying and promoting superior compensation practices, PAs' key economic role is processing and organizing a substantial amount of executive pay information on behalf of institutional investors, reducing their cost of making informed voting decisions.…”

Section: Pas’ Recommendations and Firms' Compensation Practicescontrasting

confidence: 90%

“…GL structures its analysis around three dimensions: Pay for Performance (CEO pay-performance alignment over time), Structure (design of our event study focuses on changes made after the SOP vote and explicitly tied to the PAs' recommendation and the SOP voting outcome. Our study also differs from Larcker, McCall, and Ormazabal [2012] in that we examine the analyses and reports underlying the recommendations, the determinants of the association between recommendations and shareholder votes, the market reaction to the release of the PA reports, and the effect of SOP votes on compensation practices. compensation plan), and Disclosure (adequacy of pay disclosures).…”

Section: Pa Reports On Sopmentioning

confidence: 99%

“…These protests neither lead to a change in recommendation nor result in lower voting dissent. 5 In a concurrent paper, Larcker, McCall, and Ormazabal [2012] examine the role of PAs with respect to SOP votes. They find a negative stock price reaction to compensation changes made before the SOP vote, presumably to avoid PAs' negative recommendations, while policymakers, such as how recommendations and the underlying analyses differ across PAs, whether they reflect a "one-size-fits-all" approach, the extent to which they "cause" shareholder votes, and the determinants of such influence.…”

Section: Introductionmentioning

confidence: 99%

“…In a concurrent paper, Larcker, McCall, and Ormazabal [] examine the role of PAs with respect to SOP votes. They find a negative stock price reaction to compensation changes made before the SOP vote, presumably to avoid PAs’ negative recommendations, while our event study focuses on changes made after the SOP vote and explicitly tied to the PAs’ recommendation and the SOP voting outcome.…”

mentioning

confidence: 99%

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Shareholder Votes and Proxy Advisors: Evidence from Say on Pay

Ertimur

Ferri

Oesch

2013

J of Accounting Research

342

223

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We investigate the economic role of proxy advisors (PAs) in the context of mandatory "say on pay" votes, a novel and complex item requiring significant firm-specific analysis. PAs are more likely to issue an Against recommendation at firms with poor performance and higher levels of CEO pay and do not appear to follow a "one-size-fits-all" approach. PAs' recommendations are the key determinant of voting outcome but the sensitivity of shareholder votes to these recommendations varies with the institutional ownership structure, and the rationale behind the recommendation, suggesting that at least some shareholders do not blindly follow these recommendations. More than half of the firms respond to the adverse shareholder vote triggered by a negative *

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Section: Pas’ Recommendations and Firms' Compensation Practicescontrasting

confidence: 90%

Section: Pa Reports On Sopmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Shareholder Votes and Proxy Advisors: Evidence from Say on Pay

Ertimur

Ferri

Oesch

2013

J of Accounting Research

342

223

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“…Moreover, after the Enron-type scandals and the burst of the dotcom bubble, there has been a 'change in sentiment' over the usefulness of option-based payalso related to the option backdating scandal and an increase in compensation-related shareholder activism through shareholder proposals and vote-no campaigns against compensation committee members (Ertimur et al, 2011). As a result of the above activism, the mandatory adoption of 'say on pay' in 2011 leads firms to change their pay practices both before and after the vote, in an attempt to obtain a favourable voting outcome (Larcker et al, 2012;Ertimur et al, 2013). Finally, incentive pay has been viewed as a potential reason for the excessive risktaking underlying the financial crisis.…”

mentioning

confidence: 99%

CEO Pay and Firm Size: An Update After the Crisis

Gabaix

Landier

Sauvagnat

2014

The Economic Journal

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In the 'size of stakes' view quantitatively formalised in Gabaix and Landier (2008) Executive compensation remains very much at the center-stage of academic and policy debates. A relative lack of consensus seems to prevail regarding the origins of the large rise of executive compensation observed in the US since the 70s. According to some scholars (see e.g. Bebchuck and Fried (2004) for a summary of this view), rising compensation is due to a higher ability of CEOs to extract rents from shareholders, e.g. by capturing their board (Shivdasani and Yermack, 1999) or appointing compensation consultants that cater to their interests (Murphy and Sandino, 2010). Hermalin (2005) argues instead that the rise in CEO pay reflects tighter corporate governance: pay increases to compensate CEOs for the greater risk of being fired. Others argue that the very function of CEOs has changed over time: they are now more often poached from outside firms than before (Murphy and Zabojnik, 2004;Frydman, 2005); shareholders have become more convinced of the importance of financial incentives (Jensen et al., 2004). By contrast, Gabaix and Landier (2008, henceforth GL) argue that the bulk of variations in CEO compensation across time and across companies can be explained as the result of competitive market forces. They show that under fairly general assumptions, in a market,

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An investigation of corporate directors' responses to CEO pay ratio disclosures and say‐on‐pay votes

Norman

Rose

et al. 2020

Human Resource Management

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The purpose of this study is to shed light on the effects of the CEO pay ratio and say‐on‐pay votes on directors' concerns about CEO pay equity. Investigation of the pay ratio disclosure rule offers opportunities to gain insights into whether equity perceptions associated with mandated pay ratio disclosure have significant effects on remuneration decisions in organizations. We conduct an online experiment with practicing corporate directors to examine the effects of CEO pay ratio disclosures and say‐on‐pay (SOP) votes on director decisions. Results indicate that CEO pay ratio disclosures significantly influence directors' decisions regarding executive compensation, leading directors to be less willing to increase CEO pay when the pay ratio is above the industry average pay ratio. Results also demonstrate that say‐on‐pay votes only influence directors' compensation decisions when the CEO pay ratio is above the industry average. Directors in firms with pay ratios that are above the industry average are less willing to increase CEO pay when they anticipate shareholder votes against a CEO pay increase than when they anticipate positive SOP voting outcomes. Directors in firms with CEO pay ratios that are below the industry average, however, are willing to increase CEO pay regardless of SOP voting outcomes.

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The Economic Consequences of Proxy Advisor Say-on-Pay Voting Policies

Cited by 23 publications

References 17 publications

Shareholder Votes and Proxy Advisors: Evidence from Say on Pay

Shareholder Votes and Proxy Advisors: Evidence from Say on Pay

CEO Pay and Firm Size: An Update After the Crisis

An investigation of corporate directors' responses to CEO pay ratio disclosures and say‐on‐pay votes

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