Shareholders' Say on Pay: Does it Create Value?
Ralph A. Walkling
Drexel University - Lebow College of Business
September 4, 2009
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Drexel College of Business Research Paper No. 2008-06
Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal CEO compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation, but can destroy value for others.
Number of Pages in PDF File: 65
Keywords: Say on Pay, Executive compensation, Shareholder Activism, Access to Proxy
JEL Classification: G34, G38, K22
Date posted: November 20, 2007 ; Last revised: November 12, 2009