Shareholders' Say on Pay: Does it Create Value?

58 Pages Posted: 25 Mar 2008 Last revised: 28 Jul 2011

See all articles by Jie Cai

Jie Cai

Drexel University

Ralph A. Walkling

Drexel University - Lebow College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: December 8, 2008


Congress and activists recently proposed to give shareholders an advisory vote on executive compensation, i.e. say-on-pay. Proponents argue that say-on-pay further aligns owner-manager interests. Opponents worry that shareholder vote will restrict the board and management and inhibit their ability to design optimal compensation. We perform three experiments to analyze the benefits and costs of say-on-pay. First, the Say-on-Pay Bill passed the House of Representatives on April 20, 2007. Using the abnormal return of 1,270 firms surrounding the bill passage, we document a significantly positive reaction from firms with high abnormal CEO compensation and low pay for performance. Firms more likely to implement changes under shareholder pressure also react positively. Given the uncertainty surrounding this bill, these results may understate the actual impact of the legislation. Second, using 49 firms receiving shareholder sponsored say-on-pay proposals, we find that these companies are unlikely to benefit. They appear to be targeted for their large size rather than overpaid CEO or poor governance or performance. Their stock price reacts negatively to proposal announcement, especially when the proposal is sponsored by labor unions. When shareholders defeat these proposals, the market reacts positively, and the reaction increases with more opposing votes. Our third test examines the relation of previous votes on executive incentive compensation plans and abnormal CEO pay. Overall, our findings suggest that the market views say-on-pay as value-creating for companies with inefficient executive compensation and relatively poor governance but value-destroying for other companies. These results provide important evidence for the current debate regarding say-on-pay.

Keywords: Say on Pay, Executive compensation, Shareholder Activism, Access to Proxy

JEL Classification: G34, G38, K22

Suggested Citation

Cai, Jie and Walkling, Ralph August, Shareholders' Say on Pay: Does it Create Value? (December 8, 2008). AFA 2009 San Francisco Meetings Paper, Available at SSRN: or

Jie Cai (Contact Author)

Drexel University ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1755 (Phone)
215-895-2955 (Fax)


Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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