The Value of Say on Pay

40 Pages Posted: 21 Feb 2019 Last revised: 3 Apr 2019

See all articles by Axel H. Kind

Axel H. Kind

University of Konstanz

Marco Poltera

University of Basel

Johannes Zaia

University of Konstanz

Date Written: March 15, 2019

Abstract

This paper measures the influence of "say on pay" (SoP) - mandatory shareholder votes on top-management compensation - on the market value of corporate voting rights. By exploiting the staggered introduction of SoP regulations across ten major European economies, we show by difference-in-differences (DiD) regressions that the value of voting rights at annual shareholder meetings - extracted from prices of liquid options - has increased for firms with excessive CEO pay, while it has decreased for other companies. Surprisingly, shareholders tend to value advisory SoP votes but not the stricter binding votes. Thus, the option to signal dissent with current compensation via SoP votes is not per se valuable and can actually translate into net costs for shareholders. Finally, the effect of mandatory SoP on voting values is concentrated on the year of introduction and fades out over time. Placebo regressions support the accuracy of our DiD research design.

Keywords: Say on Pay, Corporate Voting Rights, Corporate Governance, Option Pricing

JEL Classification: G13, G32, G34

Suggested Citation

Kind, Axel H. and Poltera, Marco and Zaia, Johannes, The Value of Say on Pay (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3337192 or http://dx.doi.org/10.2139/ssrn.3337192

Axel H. Kind

University of Konstanz

Universitätsstraße 10
Konstanz, D-78457
Germany

Marco Poltera

University of Basel ( email )

WWZ, Corporate Finance Division
Peter Merian-Weg 6
Basel, 4002
Switzerland

Johannes Zaia (Contact Author)

University of Konstanz ( email )

Fach D-144
Universitätsstraße 10
Konstanz, D-78457
Germany

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