Does Shareholder Approval Requirement of Equity Compensation Plans Matter?

49 Pages Posted: 6 Sep 2011 Last revised: 3 Jul 2012

See all articles by Lilian Ng

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Valeriy Sibilkov

University of Wisconsin - Milwaukee - Department of Finance

Qinghai Wang

University of Central Florida - College of Business Administration

Nataliya S. Zaiats

Suffolk University - Sawyer School of Management

Date Written: May 27, 2011

Abstract

This paper studies the impact of the 2003 SEC Regulation requiring shareholder approval of all equity-based executive compensation plans on executive compensation policies and practices at S&P 500 firms. Following the 2003 Regulation, firms with shareholder approved equity plans in place or those with strong performance, while not those with non-approved plans or weak performance, increase their equity compensation proposal submission activity. The quality of equity compensation proposals improves in the after-regulation period, and shareholders exhibit greater scrutiny and monitoring of executive compensation through increased voting rights. We find a decline in the equity pay component while an increase in the cash component of total executive compensation after the 2003 Regulation and also provide evidence that the 2003 Regulation contributes to this change in compensation structure.

Keywords: Executive compensation, Equity compensation, SEC regulation, Shareholder voting rights

JEL Classification: G30, G38

Suggested Citation

Ng, Lilian and Sibilkov, Valeriy and Wang, Qinghai and Zaiats, Nataliya S., Does Shareholder Approval Requirement of Equity Compensation Plans Matter? (May 27, 2011). Journal of Corporate Finance, Vol. 17, 2011, 1510-1530., Available at SSRN: https://ssrn.com/abstract=1922895 or http://dx.doi.org/10.2139/ssrn.1922895

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

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

Valeriy Sibilkov

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Nataliya S. Zaiats (Contact Author)

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

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