Say on Pay: Is it Needed? Does it Work?

11 Pages Posted: 10 May 2018

Date Written: Winter 2018


A leading compensation practitioner reviews “Say on Pay” rules, those corporate practices giving shareholders the right to vote on executive compensation. The assumption behind “Say on Pay” is that managers may be overpaid because directors fail to provide adequate oversight. O'Byrne questions this underlying assumption. He provides substantial evidence that directors do a poor job overseeing executive pay and that directors have weak incentives to pursue shareholder interests in executive pay. He also finds that “Say on Pay voting is sensitive to differences in pay for performance, but so forgiving that extraordinary pay premiums are required to elicit a majority ‘no’ vote”; and “that three quarters of institutional investors have lower SOP voting quality… than the average investor and almost all have a short‐term focus, with much greater vote sensitivity to current year grant date pay premiums than to long‐term pay alignment and cost.”. The common corporate practice of providing competitive target compensation regardless of past performance leads to low alignment of pay and performance. Unfortunately, directors have little incentive to protect shareholder interests “because they are paid labor providers, just like management, not stewards of substantial personal capital.”

Suggested Citation

O'Byrne, Stephen F., Say on Pay: Is it Needed? Does it Work? (Winter 2018). Journal of Applied Corporate Finance, Vol. 30, Issue 1, pp. 30-38, 2018, Available at SSRN: or

Stephen F. O'Byrne (Contact Author)

Shareholder Value Advisors, Inc. ( email )

21 Bonnie Way
Larchmont, NY 10538
United States
914-833-5891 (Phone)


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