Abstract

http://ssrn.com/abstract=2358696
 


 



Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting


Mathias Kronlund


University of Illinois at Urbana-Champaign

Shastri Sandy


University of Missouri at Columbia

April 7, 2014


Abstract:     
To comply with the Dodd-Frank Act of 2010, public firms must periodically hold advisory shareholder votes on executive compensation ("say on pay"). We examine how firms change the structure of executive compensation in anticipation of having a say-on-pay vote. Our identification strategy exploits the fact that some firms hold votes only every two or three years, which results in predictable within-firm variation regarding whether a particular year's pay will be subject to a vote. We find that firms reduce salaries to CEOs but increase their stock awards, pensions, and deferred compensation in anticipation of having a vote. The additional pay (mainly from stock awards) outweighs the reduction in salaries, so total pay is higher in years with a vote. These results show that increased shareholder scrutiny — in the form of holding say-on-pay votes — changes how executives are compensated. However, these changes seem mainly to improve the "optics" of pay, and, contrary to the goals of the say-on-pay regulation, result in higher, not lower, total pay.

Number of Pages in PDF File: 41

Keywords: Say on pay, executive compensation, CEOs, Dodd-Frank, shareholder voice

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Date posted: November 24, 2013 ; Last revised: April 8, 2014

Suggested Citation

Kronlund, Mathias and Sandy, Shastri, Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting (April 7, 2014). Available at SSRN: http://ssrn.com/abstract=2358696 or http://dx.doi.org/10.2139/ssrn.2358696

Contact Information

Mathias Kronlund (Contact Author)
University of Illinois at Urbana-Champaign ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Shastri Sandy
University of Missouri at Columbia
500 E. 52nd ST
Kansas City, MO 64110
United States
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