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Does Shareholder Scrutiny Affect Executive Compensation?

Mathias Kronlund

University of Illinois at Urbana-Champaign

Shastri Sandy

The Brattle Group

November 20, 2015

We examine if shareholder scrutiny affects how companies set the structure and level of their top executives’ compensation. We exploit a feature of recent U.S. regulation on “advisory votes on compensation” (often called “say-on-pay”), which resulted in time-varying scrutiny on pay in the form of a periodic voting pattern for some firms. Specifically, our identification strategy relies on within-firm variation among companies that elected to hold votes every two or three years and thus are subject to a predictable cyclical voting schedule. We find that in years when faced with a vote, firms reduce salaries and golden parachutes to CEOs, but increase equity pay and pensions. On net, total pay is higher. Overall, our results show that the heightened scrutiny on firms when they hold votes matters, and has a significant influence on managerial compensation.

Number of Pages in PDF File: 66

Keywords: Executive compensation, scrutiny, shareholders, say on pay, CEOs, Dodd-Frank, shareholder voice

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Date posted: November 24, 2013 ; Last revised: June 3, 2016

Suggested Citation

Kronlund, Mathias and Sandy, Shastri, Does Shareholder Scrutiny Affect Executive Compensation? (November 20, 2015). Available at SSRN: https://ssrn.com/abstract=2358696 or http://dx.doi.org/10.2139/ssrn.2358696

Contact Information

Mathias Kronlund (Contact Author)
University of Illinois at Urbana-Champaign ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Shastri Sandy
The Brattle Group ( email )
44 Brattle St
Cambridge, MA MA 02138
United States
312-315-8395 (Phone)
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