Say-on-Pay and Shareholder Value: The Tension between Agency and Hold-up

47 Pages Posted: 26 Mar 2011 Last revised: 17 Jan 2023

See all articles by Alexander F. Wagner

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Christoph Wenk

University of Zurich - Department of Banking and Finance

Date Written: December 21, 2022

Abstract

A set of policy experiments regarding binding say-on-pay votes in Switzerland suggests
that shareholders may prefer to have limits set on their own power. The stock price reactions
indicate a trade-off: On the one hand, binding votes on executive compensation
amounts enhance the alignment of management interests with those of the shareholders,
reducing agency costs. On the other hand, when shareholders have the power to
(partially) set pay levels retrospectively, it may increase hold-up problems by distorting
executives’ incentives to make extra-contractual, firm-specific investments. These findings
have implications for the design of policy.

Keywords: say-on-pay, event study, corporate governance, executive compensation

JEL Classification: G38, G34

Suggested Citation

Wagner, Alexander F. and Wenk, Christoph, Say-on-Pay and Shareholder Value: The Tension between Agency and Hold-up (December 21, 2022). Swiss Finance Institute Research Paper No. 11-12, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 500/2017, Available at SSRN: https://ssrn.com/abstract=1793089 or http://dx.doi.org/10.2139/ssrn.1793089

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Christoph Wenk

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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