Does Shareholder Approval Requirement of Equity Compensation Plans Matter?
Lilian K. Ng
University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business
University of Wisconsin - Milwaukee - Department of Finance
Georgia Institute of Technology
Nataliya S. Zaiats
Simmons College School of Management
May 27, 2011
Journal of Corporate Finance, Vol. 17, 2011, 1510-1530.
This paper studies the impact of the 2003 SEC Regulation requiring shareholder approval of all equity-based executive compensation plans on executive compensation policies and practices at S&P 500 firms. Following the 2003 Regulation, firms with shareholder approved equity plans in place or those with strong performance, while not those with non-approved plans or weak performance, increase their equity compensation proposal submission activity. The quality of equity compensation proposals improves in the after-regulation period, and shareholders exhibit greater scrutiny and monitoring of executive compensation through increased voting rights. We find a decline in the equity pay component while an increase in the cash component of total executive compensation after the 2003 Regulation and also provide evidence that the 2003 Regulation contributes to this change in compensation structure.
Number of Pages in PDF File: 49
Keywords: Executive compensation, Equity compensation, SEC regulation, Shareholder voting rights
JEL Classification: G30, G38Accepted Paper Series
Date posted: September 6, 2011 ; Last revised: July 3, 2012
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