Golden Parachutes and the Limits of Shareholder Voting

39 Pages Posted: 20 Aug 2018 Last revised: 7 Feb 2019

See all articles by Albert H. Choi

Albert H. Choi

University of Virginia School of Law

Andrew Lund

Villanova University School of Law

Robert J. Schonlau

Miami University - Farmer School of Business

Date Written: February 5, 2019

Abstract

With the passage of Dodd-Frank Act in 2010, Congress attempted to constrain executive compensation triggered by change-in-control (golden parachute) payments by giving shareholders the right to approve or disapprove the payments on an advisory basis. This Article is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that the SOGP voting regime is likely ineffective in controlling GP compensation. First, proxy advisors tend to adopt a one-size-fits-all approach to recommendations on SOGP votes. Second, shareholders tend to adhere to advisor recommendations. Finally, the size of golden parachutes appears to be increasing in the years following 2010 and the golden parachutes that are amended immediately prior to SOGP votes tend to grow rather than shrink. These findings contrast with the research that has examined Say-on-Pay (“SOP”), and we suggest that the differences between the two regimes lie in the absence of second-stage discipline for SOGP votes. We offer potential avenues for improving SOGP’s ability to shape change-in-control compensation practices, such as making SOGP votes (partially) binding, and making the GP payment and SOGP voting information more readily available to shareholders of corporations where the target directors also serve as directors and also of acquiring corporations.

Keywords: Golden Parachutes, Executive Compensation, Shareholder Voting, Say on Golden Parachutes, Corporate Governance

Suggested Citation

Choi, Albert H. and Lund, Andrew and Schonlau, Robert J., Golden Parachutes and the Limits of Shareholder Voting (February 5, 2019). Virginia Law and Economics Research Paper No. 2018-13. Available at SSRN: https://ssrn.com/abstract=3229962

Albert H. Choi (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Andrew Lund

Villanova University School of Law ( email )

299 N. Spring Mill Rd.
Villanova, PA 19085
United States

Robert J. Schonlau

Miami University - Farmer School of Business ( email )

Oxford, OH 45056
United States

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