The Effect of the Say-on-Pay in the U.S.

Abstract:     

We use that a group of firms were provided a two-year exemption from holding a Say-on-Pay vote to isolate the causal effect of holding advisory shareholder votes on executive compensation as mandated by the Dodd-Frank Act. We focus on firms close to the exemption cutoff and instrument firm compliance with the SEC rule. The regulation increased the level of CEO pay, and led to higher use of cash bonuses and change of control payments. Moreover, the market reacted negatively to the exemption from the Say-on-Pay rule suggesting general support for Say-on-Pay votes. We also document an increase in shareholder support for directors among firms that were required to hold a Say-on-Pay vote.

Number of Pages in PDF File: 50

Keywords: CEO Compensation, Shareholder Voting, Corporate Governance, Say-on-Pay

JEL Classification: G30, G38