Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting
University of Illinois at Urbana-Champaign
University of Missouri
April 15, 2015
As a result of the Dodd-Frank Act of 2010, public firms must periodically hold advisory shareholder votes on executive compensation ("say-on-pay"). We examine if firms change the structure of compensation when faced with a vote. Our identification strategy exploits within-firm variation among companies that hold votes every two or three years, thus providing a predetermined cyclical voting schedule. 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. Shareholder scrutiny can thus cause firms to focus on the "optics" of compensation, and contrary to the intended goal of say-on-pay regulation, result in higher pay.
Number of Pages in PDF File: 66
Keywords: Say on pay, executive compensation, CEOs, Dodd-Frank, shareholder voice
Date posted: November 24, 2013 ; Last revised: April 16, 2015
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