The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans
University of Pennsylvania - Accounting Department
Ian D. Gow
Harvard Business School
David F. Larcker
Stanford University - Graduate School of Business
March 13, 2012
Stanford School of Business Research Paper No. 2097
Rock Center for Corporate Governance at Stanford University Working Paper No. 112
This study examines the effects of shareholder support for equity compensation plans on subsequent chief executive officer (CEO) compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive-compensation. We also find that in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose, and shareholders are more likely to approve, a plan the following year. Our results suggest that shareholder votes have little substantive impact on firms’ incentive-compensation policies. Thus, recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms’ compensation policies.
Number of Pages in PDF File: 50
Keywords: executive compensation, equity-based compensation, shareholder voting
JEL Classification: G3, J33, M52working papers series
Date posted: March 14, 2012 ; Last revised: June 22, 2012
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