Boards' Response to Shareholders' Dissatisfaction: The Case of Shareholders' Say on Pay in the UK

Posted: 2 Jun 2009 Last revised: 3 May 2015

See all articles by Walid Alissa

Walid Alissa

HEC Paris - Accounting and Management Control Department

Date Written: May 3, 2015

Abstract

In 2002, the United Kingdom adopted a regulation allowing shareholders to cast non-binding (advisory) votes on their firm's Directors' Remuneration Report during annual general meetings (the 'Say-on-Pay' rule). This study evaluates a decade of this regulation and examines how it affected the behavior of shareholders and boards in a sample of FTSE 350 firms during the period 2002-2012. I find evidence that shareholder dissatisfaction increases with excess CEO compensation. This relationship does not exist for the expected level of compensation, suggesting that shareholders take a sophisticated approach when casting their vote. Boards do not appear to respond to shareholder dissatisfaction systematically, however they do respond selectively by reducing the excessiveness of CEO compensation when performance is poor. Boards also seem to respond swiftly to shareholder dissatisfaction. There is evidence that the probability of CEO turnover increases with shareholder dissatisfaction. Overall, the evidence suggests that 'Say-on-Pay' regulation addressed regulatory concerns about transparency, accountability, and performance linkage.

Keywords: Executive compensation, Say-on-Pay, shareholders' vote, dissatisfaction

JEL Classification: M52, J33, J63, G34, K22

Suggested Citation

Alissa, Walid, Boards' Response to Shareholders' Dissatisfaction: The Case of Shareholders' Say on Pay in the UK (May 3, 2015). European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=1412880 or http://dx.doi.org/10.2139/ssrn.1412880

Walid Alissa (Contact Author)

HEC Paris - Accounting and Management Control Department ( email )

Accounting and Management Control Department
1, rue de la libération
Jouy-en-Josas, 78351
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
5,912
PlumX Metrics