Shareholders' Say on Pay: Does it Create Value?

Abstract:     
Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal CEO compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation, but can destroy value for others.

Keywords: Say on Pay, Executive compensation, Shareholder Activism, Access to Proxy

JEL Classifications: G34, G38, K22

Accepted Paper Series