Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

59 Pages Posted: 30 Nov 2016 Last revised: 10 Feb 2017

See all articles by Martin Bugeja

Martin Bugeja

University of Technology, Sydney; Financial Research Network (FIRN)

Raymond da Silva Rosa

The University of Western Australia - Department of Accounting and Finance; Financial Research Network (FIRN)

Yaowen Shan

University of Technology Sydney (UTS) - School of Accounting; Financial Research Network (FIRN)

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

David Yermack

New York University (NYU) - Stern School of Business

Date Written: November 28, 2016

Abstract

“Say on pay” legislation has been introduced in several countries but Australia’s version, namely the “two-strikes” rule, is unique in that it empowers shareholders to vote on a board spill if the compensation report of a public company receives 25% or more dissenting votes for two consecutive years. We test the proposition that the “two strikes” rule has increased directors’ accountability beyond executive pay because it has substantially lowered the cost to activists of organizing sufficient votes to threaten managers with a board spill. Consistent with this expectation, we find Australian firms respond to negative say-on-pay votes by curbing excessive CEO pay, reducing the growth rate of pay and changing the pay mix. In addition, the results suggest that the market regards negative SOP votes as a value-destroying signal since there is a negative market reaction, lower valuation and long-run underperformance. We also find an increase in CEO turnover but directors do not seem to bear reputational costs through the loss of outside directorships. The findings provide important insights to investors, company directors and regulators.

Suggested Citation

Bugeja, Martin and da Silva Rosa, Raymond and Shan, Yaowen and Walter, Terry Stirling and Yermack, David, Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms (November 28, 2016). CIFR Paper No. 130/2016. Available at SSRN: https://ssrn.com/abstract=2876925 or http://dx.doi.org/10.2139/ssrn.2876925

Martin Bugeja

University of Technology, Sydney ( email )

Australia
61 2 9514 3743 (Phone)
61 2 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Raymond Da Silva Rosa (Contact Author)

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Yaowen Shan

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

David Yermack

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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