Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting
University of Illinois at Urbana-Champaign
University of Missouri
October 20, 2014
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 how firms change the structure and level of executive pay when they face a say-on-pay vote. Our identification strategy exploits within-firm variation in the intensity of shareholder scrutiny, by comparing compensation across years when a firm is expected to face a vote, versus years when it is not. This strategy is enabled by firms that hold votes every other two or three years, resulting in a predetermined cyclical schedule for whether a particular year's compensation will be put to a vote. We find that firms reduce salaries to CEOs but increase their stock awards, pensions, and deferred compensation in years when they face 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 voiceworking papers series
Date posted: November 24, 2013 ; Last revised: November 1, 2014
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