Say-on-Pay and Shareholder Value: The Tension between Agency and Hold-up
Swiss Finance Institute Research Paper No. 11-12
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 500/2017
47 Pages Posted: 26 Mar 2011 Last revised: 17 Jan 2023
Date Written: December 21, 2022
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: Suggested Citation
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