Say on Pay, Governance Quality, and Shareholder Pressure
48 Pages Posted: 12 Aug 2011 Last revised: 26 Aug 2019
Date Written: October 1, 2013
Abstract
I examine the economic consequences of Say on Pay (SoP) for firms with different governance qualities in a setting where shareholders face informational constraints in evaluating the efficiency of the firm's compensation policy and where the firm's governance structure is endogenous. I find that the effectiveness of SoP critically depends on the firm's governance quality and its ability to adjust the board structure in response to the new regulation. However, a more effective SoP regime not necessarily benefits shareholders because it equally prevents properly (poorly) governed firms from neutralizing the unintended (intended) consequences of SoP on its compensation policy by nominating a more CEO-friendly compensation committee.
Keywords: Corporate Governance, Compensation Committee, Executive Compensation, Say on Pay, Shareholder Activism.
JEL Classification: G34, G38, K22, M12, M48
Suggested Citation: Suggested Citation
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