Does Obfuscating Excessive CEO Pay Work? The Influence of Remuneration Report Readability on Say-on-Pay Votes

Accounting and Business Research 47(6): 695-729, 2017

Posted: 19 Jan 2017 Last revised: 11 Aug 2017

See all articles by Reggy Hooghiemstra

Reggy Hooghiemstra

University of Groningen - Faculty of Economics and Business

Yu Flora Kuang

The University of Melbourne

Bo Qin

The University of Melbourne

Date Written: August 10, 2017

Abstract

This paper assesses whether reducing ‘readability’ is an effective obfuscation strategy for influencing the level of shareholder say-on-pay voting dissent in firms with excessive CEO pay. Based on a sample of UK-listed firms, our results indicate that in cases of excessive CEO pay, a less readable remuneration report is associated with reduced say-on-pay voting dissent. However, the effect of the obfuscation strategy diminishes as institutional ownership increases. Using obscurely written remuneration reports may even backfire (i.e. associated with increased voting dissent) when a firm’s majority shares are held by institutional investors. Our results are robust to controlling for compensation contract complexity as well as other alternative explanations. The results are also robust to various controls for endogeneity including a two-stage instrumental variable approach and propensity-score matching. Our findings offer regulatory implications that regulators could minimize the use of ‘obfuscation’ in pay-related disclosures by prescribing how information is to be presented.

Keywords: disclosure; readability; say on pay; shareholder votes

JEL Classification: M20; M40; M41; G30

Suggested Citation

Hooghiemstra, Reggy and Kuang, Yu and Qin, Bo, Does Obfuscating Excessive CEO Pay Work? The Influence of Remuneration Report Readability on Say-on-Pay Votes (August 10, 2017). Accounting and Business Research 47(6): 695-729, 2017. Available at SSRN: https://ssrn.com/abstract=2900877

Reggy Hooghiemstra

University of Groningen - Faculty of Economics and Business ( email )

Department of Auditing
P.O. Box 800
9700 AH Groningen
Netherlands
31 50 363 3768 (Phone)
31 50 363 7174 (Fax)

Yu Kuang

The University of Melbourne ( email )

Level 7, The Spot
198 Berkeley St
Carlton, Victoria 3053
Australia
+61383449361 (Phone)
+61393492397 (Fax)

Bo Qin (Contact Author)

The University of Melbourne ( email )

Level 8, Department of Accounting
Carlton, Victoria 3053
Australia
+61383449361 (Phone)
+61393492397 (Fax)

HOME PAGE: http://www.findanexpert.unimelb.edu.au/display/person743093#tab-overview

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