Australia's 'Two-Strikes' Rule and the Pay-Performance Link: Are Shareholders Judicious?

Journal of Contemporary Accounting & Economics, Forthcoming

56 Pages Posted: 3 Oct 2013 Last revised: 27 Oct 2013

See all articles by Reza Monem

Reza Monem

Griffith University - Griffith Business School; Griffith Business School, Griffith University

Chew Ng

Griffith University - Griffith Business School

Date Written: March 27, 2013

Abstract

To improve accountability of executive compensation, Australia introduced the ‘say-on-pay’ legislation in 2011, which is widely known as the ‘two-strikes’ rule. We investigate the consequences of this new rule for the pay-performance link in Australian firms. Employing a matched-pair design, we find that pay changes of the chief executive officer and the key management personnel were not significantly positively related to the stock returns of the firms that registered a ‘first strike’ in 2011 under the ‘two-strikes’ rule. However, the relations improved significantly in 2012. Our results also suggest that the shareholders of the ‘first-strike’ firms may have been over-enthusiastic about their voting power in 2011 but exercised this power more judiciously in 2012. Our findings provide important insights for the global debate on governance of executive compensation.

Keywords: ‘Two strikes’ rule, Say on pay, Executive compensation, Pay-performance link, Chief executive officer, Corporate governance

JEL Classification: G38, M12, K12

Suggested Citation

Monem, Reza M. and Ng, Chew, Australia's 'Two-Strikes' Rule and the Pay-Performance Link: Are Shareholders Judicious? (March 27, 2013). Journal of Contemporary Accounting & Economics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2334285

Reza M. Monem (Contact Author)

Griffith University - Griffith Business School ( email )

170 Kessels Road
Brisbane, Nathan, QLD 4111
Australia

Griffith Business School, Griffith University ( email )

170 Kessels Road
Nathan
Brisbane QLD 4111
Australia

Chew Ng

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

HOME PAGE: http://www.griffith.edu.au/cgi-bin/frameit?http://www.griffith.edu.au/school/gbs/afe/staff/chew_ng.h

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