Shareholder Activism and CEO Pay

Review of Financial Studies, Vol. 24, No. 2, pp. 535-592, 2011

72 Pages Posted: 7 Aug 2009 Last revised: 29 Dec 2016

See all articles by Yonca Ertimur

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting

Volkan Muslu

C.T. Bauer College of Business University of Houston

Fabrizio Ferri

Associate Professor

Abstract

We study a sample of 134 vote-no campaigns and 1,198 non-binding shareholder proposals related to executive pay between 1997 and 2007. While union pension funds are the most frequent sponsor of these initiatives, relative to other proponents they are not more likely to target unionized firms or firms with labor-related negotiations and disputes. Activists target firms with high CEO pay, whether excessive or not, while voting support is higher in firms with excess CEO pay. Proposals that try to micromanage level or structure of CEO pay receive little or no voting support. Instead, shareholders favor proposals related to the pay setting process (e.g., subject certain compensation items to shareholder approval). These proposals are also more likely to be implemented. Firms with excess CEO pay targeted by vote-no campaigns experience a $7.3 million reduction in total CEO pay. In firms targeted by proposals sponsored by institutional proponents and calling for greater link between pay and performance, the reduction in CEO pay is $2.3 million. By shedding light on the effectiveness of monitoring mechanisms currently available to shareholders, our findings contribute to the debate on the proposed adoption of a “say on pay” shareholder vote on executive pay.

Keywords: shareholder activism, shareholder votes, CEO compensation, vote no campaigns

JEL Classification: G34, G38

Suggested Citation

Ertimur, Yonca and Muslu, Volkan and Ferri, Fabrizio, Shareholder Activism and CEO Pay. Review of Financial Studies, Vol. 24, No. 2, pp. 535-592, 2011. Available at SSRN: https://ssrn.com/abstract=1443455

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Volkan Muslu

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

Fabrizio Ferri (Contact Author)

Associate Professor ( email )

Coral Gables, FL 33146-6531
United States

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