Say on Pay and the Outrage Constraint

Abstract:     
Say on pay is an important regulatory innovation in the area of executive remuneration, traditionally dominated by disclosure based approaches.

In this paper I present a model of the regulatory framework for say on pay as it operates in Australia and the UK. Based on the concept of regulatory space, I present the regulated remuneration cycle as an annual cycle of four activities (remuneration practice, disclosure, engagement and voting), each of which is subject to regulation in multiple forms by a variety of regulators. This illustrates how institutional investors make rules in relation to all four activities. However, it is their activities in the sphere of remuneration practice that form the basis for their activities in engagement and voting.

I then examine the empirical evidence of its operation in the first three years in the UK (2003-2005) and Australia (2005/06 - 2007/08) using content analysis. While there is evidence of the vote 'having an effect', this paper shows that the effect was very different over the first three years of its operation in the UK as opposed to Australia.

This paper updates the paper 'Is the Outrage Constraint an Effective Constraint on Executive Remuneration? Evidence from the UK and Preliminary Results from Australia (March 18, 2007). Available at SSRN: http://ssrn.com/abstract=974965' by providing results for the first three years of a disclosure and vote regime in Australia, as well as the UK.

Number of Pages in PDF File: 45

Keywords: executive compensation, regulation, regulatory space, advisory vote, regulation, UK, Australia, best practice, outrage constraint, institutional shareholders, say on pay

JEL Classification: G18, G30, G32, G34, G38, K20, K22, M14, M52, N20

working papers series