50 Pages Posted: 14 Mar 2012 Last revised: 26 Oct 2013
Date Written: March 13, 2012
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: 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
By Kevin Murphy