Golden Parachutes and the Limits of Shareholder Voting

44 Pages Posted: 20 Aug 2018 Last revised: 22 Jan 2020

See all articles by Albert H. Choi

Albert H. Choi

University of Michigan Law School

Andrew Lund

Villanova University School of Law

Robert J. Schonlau

Miami University - Farmer School of Business

Date Written: January 21, 2020

Abstract

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, Congress attempted to constrain change-in-control payments (also known as “golden parachutes”) by giving shareholders the right to approve or disapprove such payments on an advisory basis. This Essay is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes. Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation. First, proxy advisors seem more likely to adopt a one-size-fits-all approach to recommendations on SOGP votes. Second, shareholders are more likely to adhere to advisor recommendations. Finally, the size of golden parachutes appears to be increasing in the years since the adoption of the Dodd-Frank Act in 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, market-based 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 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 (January 21, 2020). 73:1 Vanderbilt Law Review 223 (2020), Available at SSRN: https://ssrn.com/abstract=3229962

Albert H. Choi (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

HOME PAGE: http://www.law.umich.edu/FacultyBio/Pages/FacultyBio.aspx?FacID=alchoi

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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