Does Shareholder Scrutiny Affect Executive Compensation?
University of Illinois at Urbana-Champaign
The Brattle Group
November 20, 2015
We examine if shareholder scrutiny affects how companies set the structure and level of their top executives’ compensation. We exploit a feature of recent U.S. regulation on “advisory votes on compensation” (often called “say-on-pay”), which resulted in time-varying scrutiny on pay in the form of a periodic voting pattern for some firms. Specifically, our identification strategy relies on within-firm variation among companies that elected to hold votes every two or three years and thus are subject to a predictable cyclical voting schedule. We find that in years when faced with a vote, firms reduce salaries and golden parachutes to CEOs, but increase equity pay and pensions. On net, total pay is higher. Overall, our results show that the heightened scrutiny on firms when they hold votes matters, and has a significant influence on managerial compensation.
Number of Pages in PDF File: 66
Keywords: Executive compensation, scrutiny, shareholders, say on pay, CEOs, Dodd-Frank, shareholder voice
Date posted: November 24, 2013 ; Last revised: June 3, 2016
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