Abstract
We study the relationship between CEO pay-performance sensitivity, pay-risk sensitivity, and shareholder voting outcomes as part of the “say-on-pay” provision of the 2010 US Dodd-Frank Act. Consistent with our hypothesis, we provide evidence that shareholders tend to approve of compensation packages that are more sensitive to changes in stock price (pay-performance sensitivity). Our findings are consistent with theoretical predictions that outside owners approve of equity incentives as a means of aligning managers' interests with those of shareholders. We also document that future changes to equity-based incentives are related to voting outcomes and that shareholders incorporate CFO incentives into their votes. Collectively, these results provide evidence of the importance of equity-based incentives from the perspective of those most concerned with firm value and of the effectiveness of say-on-pay as a governance mechanism.
Original language | English |
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Pages (from-to) | 739-761 |
Number of pages | 23 |
Journal | Journal of Business Finance and Accounting |
Volume | 46 |
Issue number | 5-6 |
DOIs | |
State | Published - May 1 2019 |
Keywords
- executive compensation
- pay-performance sensitivity
- pay-risk sensitivity
- shareholder voting