The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

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

See all articles by Chris Armstrong

Chris Armstrong

University of Pennsylvania - Accounting Department

Ian D. Gow

University of Melbourne; University of Melbourne - Department of Accounting and Business Information Systems

David F. Larcker

Stanford University - Graduate School of Business; European Corporate Governance Institute (ECGI); Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance

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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 S. 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

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

David F. Larcker

Stanford University - Graduate School of Business ( email )

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance ( email )

Crown Quadrangle 559 Nathan Ab
Stanford, CA 94305-8610
United States

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