The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

50 Pages Posted: 14 Mar 2012 Last revised: 26 Oct 2013

Chris Armstrong

University of Pennsylvania - Accounting Department

Ian D. Gow

Harvard University - Accounting & Control Unit

David F. Larcker

Stanford University - Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 13, 2012

Abstract

This study examines the effects of shareholder support for equity compensation plans on subsequent chief executive officer (CEO) compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive-compensation. We also find that in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose, and shareholders are more likely to approve, a plan the following year. Our results suggest that shareholder votes have little substantive impact on firms’ incentive-compensation policies. Thus, recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms’ compensation policies.

Keywords: executive compensation, equity-based compensation, shareholder voting

JEL Classification: G3, J33, M52

Suggested Citation

Armstrong, Chris and Gow, Ian D. and Larcker, David F., The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans (March 13, 2012). Journal of Accounting Research, Vol. 51, Issue 5, pages 909-950, December 2013; Rock Center for Corporate Governance at Stanford University Working Paper No. 112; Stanford University Graduate School of Business Research Paper No. 2997. Available at SSRN: https://ssrn.com/abstract=2021401 or http://dx.doi.org/10.2139/ssrn.2021401

Chris S. Armstrong (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Ian D. Gow

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States
6174956530 (Phone)

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

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