Should Shareholders Have a Greater Say Over Executive Pay?: Learning from the Us Experience

Abstract

Executive pay arrangements in Britain's publicly quoted companies have been subjected to much criticism in recent years. Proposals that shareholders should have a greater direct say over managerial remuneration have been a by-product of the concerns expressed. Debate on this point, however, has been largely speculative. This is because there is little evidence available in the United Kingdom indicating how shareholders would exercise any new powers they might be given. This paper addresses the evidentiary gap by drawing upon the experience in the United States, where empirical work indicates that shareholder voting only operates as a potential check when pay arrangements deviate far from the norm. In a British context, these findings imply that implementing the shareholder-oriented reforms that have been canvassed recently would fail to address fully the concerns raised by critics of executive pay.

JEL Classification: G30, J33, J38, K22