Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value Around the World

55 Pages Posted: 30 May 2017

See all articles by Ricardo Correa

Ricardo Correa

Board of Governors of the Federal Reserve System

Ugur Lel

University of Georgia - Department of Banking and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: 2013

Abstract

This paper examines the effects of say on pay (SoP) laws on CEO compensation, the portion of top management pay captured by CEOs, and firm valuation. Using a large cross-country sample of about 103,000 firm-year observations from 39 countries, we document that compared to our control group of firms, SoP laws are associated with 1) a lower level of CEO compensation, which partly results from lower CEO compensation growth rates and is related to CEO power, 2) a higher pay for performance sensitivity suggesting that SoP laws have the greatest effects on firms with poor performance, 3) a lower portion of total top management pay awarded to CEOs indicating lower pay inequality among top managers and 4) a higher firm value, which is related to whether the CEO’s share of total top management pay was relatively high before the laws are passed. Further, while both mandatory and advisory SoP laws are associated with lower CEO pay levels, only advisory SoP laws tighten the sensitivity of executive pay to firm performance. Collectively, our results document significant changes in executive compensation policies and firm valuation following the passage of SoP laws around the world.

Suggested Citation

Correa, Ricardo and Lel, Ugur, Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value Around the World (2013). FRB International Finance Discussion Paper No. 1084. Available at SSRN: https://ssrn.com/abstract=2976778

Ricardo Correa (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ugur Lel

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

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