Shareholder Remuneration Votes and CEO Compensation Design

36 Pages Posted: 31 Jul 2007 Last revised: 18 Feb 2009

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting

Valentina L. Zamora

Seattle University - Albers School of Business and Economics

Date Written: November 1, 2007

Abstract

Using a sample of large UK firms from 2002 - 2006, we examine the role that shareholder remuneration votes play in executive compensation design. In particular, we investigate what aspects of CEO compensation shareholders vote against and whether corporate boards, in turn, respond to negative votes by making changes in those CEO pay elements. Prior research investigates US firms that voluntarily seek shareholder ratification of equity compensation plans and thus may suffer from self-selection bias. Conversely, the UK provides an ideal setting because remuneration votes have been required for all listed firms since 2002. Results indicate that shareholders disapprove of higher salaries, weak pay-for-performance sensitivity in bonus pay and greater potential dilution in stock-based compensation, particularly stock option pay. We find some evidence that boards respond to past remuneration votes by decreasing grants of stock option compensation but not by changing salary or the pay-for-performance link in bonus pay accordingly.

Keywords: executive compensation, shareholder vote

JEL Classification: J33, G34

Suggested Citation

Carter, Mary Ellen and Zamora, Valentina L., Shareholder Remuneration Votes and CEO Compensation Design (November 1, 2007). AAA 2008 MAS Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1004061 or http://dx.doi.org/10.2139/ssrn.1004061

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Valentina L. Zamora (Contact Author)

Seattle University - Albers School of Business and Economics ( email )

901 12th Avenue
P.O. Box 222000
Seattle, WA 98122-1090
United States
206-296-5703 (Phone)

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