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Say on Pay's Bundling Problems

46 Pages Posted: 30 Apr 2010 Last revised: 3 Aug 2010

Andrew Lund

Villanova University School of Law

Date Written: April 30, 2010


The newly enacted federal Say on Pay rule will require public firms to periodically provide shareholders with an opportunity to cast an advisory vote regarding its most recent year’s executive compensation. Like other efforts to increase shareholder power, Say on Pay has attracted criticism from those who fear that empowering shareholders will harm firms. This Article instead offers a critique of Say on Pay internal to the shareholder empowerment movement. The problem with Say on Pay is that its ex post nature neuters its ability to influence executive pay at high-performing firms. This hypothesis has been borne out by the experience with Say on Pay in the U.K. where a mandatory version has been in effect for seven years. There, Say on Pay resulted in compensation-related discipline at poorly-performing firms, but not at high-performing firms. The reason for this disparity appears to be not entirely or even significantly related to shareholder preferences or monitoring costs. Alternatively, this Article suggests that Say on Pay suffers from bundling problems insofar as shareholders reasonably fear offending executives via an adverse Say on Pay vote. Those problems are more significant at high-performing firms where the potentially offended executives are believed to be more valuable. The Article suggests that the bundling problems can be mitigated by switching from an ex post to an ex ante vote and provides a first attempt at a CEO Compensation Plan approval requirement.

Keywords: Executive Compensation, Corporate Governance, Shareholder Voting

JEL Classification: G30, G34, K20, K22, J33, M14, M52

Suggested Citation

Lund, Andrew, Say on Pay's Bundling Problems (April 30, 2010). Kentucky Law Journal, Forthcoming. Available at SSRN:

Andrew Lund (Contact Author)

Villanova University School of Law ( email )

299 N. Spring Mill Rd.
Villanova, PA 19085
United States

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