Executive Compensation: Investor Preferences During Say-on-Pay Votes and the Role of Proxy Voting Advisors

43 Pages Posted: 9 Feb 2023 Last revised: 24 Sep 2023

See all articles by Suren Gomtsian

Suren Gomtsian

London School of Economics - Law School; Tilburg Law and Economics Center (TILEC)

Date Written: February 5, 2023


Shareholder say-on-pay votes allow institutional investors to influence the incentives of managers and, consequently, corporate behaviour. Surprisingly, the preferences of investors on executive compensation have been largely overlooked in the ongoing debates on sustainable corporate behaviour. Institutional investors can either entrench the primacy of shareholder interests by demanding companies to link executive pay stronger to metrics associated with shareholder wealth maximisation or promote a more sustainable governance model by encouraging rewarding executives for reducing the company’s negative footprint on its key stakeholders. The analysis of investor disclosed explanations of say-on-pay votes in the FTSE 100 companies during 2013-2021 shows that institutional investors rely repeatedly on several dominant themes and that shareholder interests remain the core focus of say-on-pay votes. Additionally, most investors can be grouped into several clusters formed around the voting recommendations of proxy advisors. A group of UK-based institutional investors stands out by taking more individualistic and diverse approach to the stewardship of executive compensation. These findings highlight the role of local investors in the oversight of executive pay, the growing influence of proxy advisors along with the increasing share of foreign institutional investors, and the influence of best practice governance codes in driving investor stewardship preferences.

Keywords: executive pay, investor stewardship, engagement, institutional investors, say-on-pay, environmental, social, and governance (ESG), socially responsible investing (SRI)

JEL Classification: G23, G32, G34, G35, K22, M12

Suggested Citation

Gomtsian, Suren, Executive Compensation: Investor Preferences During Say-on-Pay Votes and the Role of Proxy Voting Advisors (February 5, 2023). TILEC Discussion Paper No. 2023-02 (forthcoming in Legal Studies), Available at SSRN: https://ssrn.com/abstract=4351613 or http://dx.doi.org/10.2139/ssrn.4351613

Suren Gomtsian (Contact Author)

London School of Economics - Law School ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

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