Agency versus Hold-up: Benefits and Costs of Shareholder Rights
59 Pages Posted: 26 Mar 2011 Last revised: 7 May 2018
Date Written: April 15, 2018
A set of policy experiments regarding binding say-on-pay in Switzerland sheds light on the hitherto mostly theoretical argument that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: Binding say-on-pay provides shareholders with an enhanced ability to ensure alignment; but when shareholders can (partially) set pay ex post, this may distort ex ante managerial incentives for extra-contractual, firm-specific investments. These findings inform the design of policy. The direct-democratic process by which say-on-pay was introduced in Switzerland also highlights the conflicts between society and shareholders when it comes to executive compensation.
Keywords: Say-on-pay, event study, corporate governance, executive compensation
JEL Classification: G38, G34
Suggested Citation: Suggested Citation