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Shareholders’ Say on Pay: Does It Create Value?

Published online by Cambridge University Press:  23 December 2010

Jie Cai  and
Ralph A. Walkling
Jie Cai
Affiliation:
LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104. jaycai@drexel.edu
Ralph A. Walkling
Affiliation:
LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104. rw@drexel.edu
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Abstract

Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal chief executive officer (CEO) compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist-sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor-sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation but can destroy value for others.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 46 , Issue 2 , April 2011 , pp. 299 - 339
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2011

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