Do Directors Suffer External Consequences For Poor Oversight Of Executive Compensation Evidence From Say On Pay Votes
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| Author | : Kelly R. Brunarski |
| Publisher | : |
| Total Pages | : 57 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
We provide the first evidence of significant external labor market penalties when directors fail to properly oversee executive compensation. When shareholders express disapproval through low Say-On-Pay (SOP) support, equity values decrease at firms linked by a shared director (interlocking firms), directors lose external board seats and compensation committee positions, and external directorial compensation decreases. Additionally, shareholder scrutiny increases at interlocking firms: shareholders are more likely to select annual SOP voting and offer low subsequent SOP support. We also provide the first evidence that SOP votes provide shareholders with a valuable mechanism to influence director incentives, and therefore, executive compensation contracts.
| Author | : Mary Elizabeth Thompson |
| Publisher | : |
| Total Pages | : 68 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
We provide the first evidence of external labor market penalties when directors fail to align with shareholder preferences for monitoring executive compensation. When shareholders express disapproval through low Say-On-Pay (SOP) support, directors incur significant external penalties, including lost board seats and compensation committee positions, decreased shareholder support for reelection, and decreased directorial compensation. Shareholders at firms sharing an affected director react negatively to the low support and increase their scrutiny of their firms' pay practices. Our findings suggest that non-binding SOP votes may provide shareholders with a mechanism to influence director incentives, and therefore, executive compensation.
| Author | : Lucian A. Bebchuk |
| Publisher | : Harvard University Press |
| Total Pages | : 308 |
| Release | : 2004 |
| Genre | : Business & Economics |
| ISBN | : 9780674020634 |
The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
| Author | : Kym Maree Sheehan |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 255 |
| Release | : 2012-01-01 |
| Genre | : Business & Economics |
| ISBN | : 0857938339 |
ïBased on extensive interviews with those directly involved in the executive pay setting process _ executives themselves, remuneration committee members, remuneration consultants, and institutional investors _ this excellent study finally explains how, despite repeated regulation over the past twenty years in both the UK and Australia, limits on the amount executives get paid, and a clear relationship between pay and performance remain as elusive as ever. Dr. SheehanÍs study suggests that by targeting the pay setting process rather than pay itself, regulation may have contributed, albeit unintentionally, to the endless upward ratcheting of absolute levels of executive pay.Í _ John Roberts, University of Sydney, Australia ïFor those that believe executive remuneration in the UK and Australia is too high and poorly aligned with company performance, this book provides an excellent analytical framework and strong arguments in favor of greater shareholder oversight of remuneration practices and pay levels. It is well-written, carefully argued and persuasive in its treatment of the subject. I wholeheartedly recommend it.Í _ Randall S. Thomas, Vanderbilt University Law School, US In this timely book, Kym Sheehan examines the regulatory technique known as ïsay on payÍ _ where shareholders vote on executive compensation in an annual, advisory vote on the remuneration report. Using the model of the regulated remuneration cycle, and drawing upon evidence of its operation from interviews, voting data and remuneration reports from UK and Australian companies, the book demonstrates whether say on pay can operate successfully to both constrain executive greed and ensure accountability exists for company performance and decision-making. The Regulation of Executive Compensation is essential reading for corporate governance academics, remuneration consultants, company directors, regulators, pension and superannuation fund trustees and unions. Politicians and their policy advisers, lawyers, accountants and anyone concerned about the corporate governance of listed companies will find much to interest them in this detailed study.
| Author | : Lucian Bebchuk |
| Publisher | : Harvard University Press |
| Total Pages | : 293 |
| Release | : 2006-09-30 |
| Genre | : Business & Economics |
| ISBN | : 067426195X |
The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
| Author | : Fabrizio Ferri |
| Publisher | : |
| Total Pages | : 103 |
| Release | : 2018 |
| Genre | : Compensation management |
| ISBN | : 9781680834215 |
This monograph explores the relation between corporate governance and executive compensation and evaluates the conditions under which shareholders can benefit from the right to interfere with the pay setting process by voting on the compensation proposed by the board of directors (Say on Pay). The first part of the monograph lays out the theoretical framework. The second part provides an overview of the origins and country-specific differences in Say on Pay regulation and a detailed summary and evaluation of the empirical literature on the subject.
| Author | : Lukas Mueller |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2011 |
| Genre | : |
| ISBN | : |
The debate about the compensation of executives and directors is a discussion about incentives and agency costs. This article analyzes basic tools to reduce agency costs and also assesses the ongoing debate about the future regulation of the compensation of executives and directors. It draws upon legislative experience from the United States. Recently proposed legislation in Switzerland attempts to empower shareholders with the draft of the Swiss Code of Obligations (CO). The main motivation behind this draft law is the reduction of excessive executive compensation. Directors and shareholders with a higher degree of independence might be less conflicted in their decisions but they might also have a lack of firm-specific know-how. In effect, this could lead to weaker bargaining power of directors in relation to executives when they have to contract for new employment agreements with their executives. Moreover, shareholders often do not have the time or ability to process complex disclosure about executive compensation. This will lead to uninformed voting behavior of rationally apathetic shareholders. Additionally, some shareholders, e.g., institutional investors, may prefer to stay on good terms with the CEO or directors because they want to have a good longterm relationship with the board and the executives. This article advises against implementing a specific salary cap for so called “very high compensation” and also advises against the implementation of tax burdens for executive compensation.
| Author | : Stephania Mason |
| Publisher | : |
| Total Pages | : 94 |
| Release | : 2015 |
| Genre | : Corporate governance |
| ISBN | : |
For the last two decades there has been quite a bit of debate about whether executives receive excessive compensation and if so, how to control it. A number of countries have instituted some type of Say on Pay rules, affording shareholders the right to vote on executive compensation. Much of this regulatory activity and debate is predicated on the notion that shareholder voting actually influences executive compensation for the better. Although Say on Pay continues to grow as a regulatory tool, the effectiveness of it as a mechanism to effect change remains an open and controversial question, and academic research has been inconclusive. Some prior studies find no change in the level of CEO pay around the adoption of Say on Pay in the U.S. and the U.K. (e.g., see Ferri & Maber (2013) for the U.K. and Iliev & Vitanova (2013) for the U.S.), whereas other studies provide strong evidence that Say on Pay is associated with lower CEO pay. (e.g., see Correa & Lel (2013)). The primary purpose of this dissertation is to investigate the impact of Say on Pay by addressing an important question: Do firms alter executive compensation after the enactment of Say on Pay? I conduct a meta-analysis on the impact of Say on Pay on executive compensation, comprising prior tests derived from 29 primary studies. Impact is measured for the firm by comparing the level of executive compensation and its growth rate; pay-performance sensitivity; pay dispersion (between the CEO and other top executives); and composition of executive compensation in the pre- and post-Say on Pay periods. I find that Say on Pay does not reduce executive compensation; however it does change the composition of the compensation. These results are inconsistent with the public interest theory of regulation, which posits that regulation is implemented to improve some public good (reduce executive compensation). In addition, I construct an international comparative analysis of Say on Pay votes outlining the history of compensation, political trends, and corporate governance characteristics that led to the specific legislation in each jurisdiction in order to evaluate the impact of Say on Pay by type and find that binding votes lead to larger CEO compensation reduction.
| Author | : John S. Beasley |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 553 |
| Release | : 2012-01-01 |
| Genre | : Business & Economics |
| ISBN | : 1781005109 |
Research on executive compensation has exploded in recent years, and this volume of specially commissioned essays brings the reader up-to-date on all of the latest developments in the field. Leading corporate governance scholars from a range of countries set out their views on four main areas of executive compensation: the history and theory of executive compensation, the structure of executive pay, corporate governance and executive compensation, and international perspectives on executive pay. The authors analyze the two dominant theoretical approaches – managerial power theory and optimal contracting theory – and examine their impact on executive pay levels and the practices of concentrated and dispersed share ownership in corporations. The effectiveness of government regulation of executive pay and international executive pay practices in Australia, the US, Europe, China, India and Japan are also discussed. A timely study of a controversial topic, the Handbook will be an essential resource for students, scholars and practitioners of law, finance, business and accounting.
| Author | : Alexander Kostyuk |
| Publisher | : Emerald Group Publishing |
| Total Pages | : 299 |
| Release | : 2016-01-06 |
| Genre | : Business & Economics |
| ISBN | : 1785606824 |
This book argues for a correct balance between risk and reward and for Directors' remuneration to be equitable to all parties and stakeholders. By examining the current theories, practices and regulations and explaining them in detail it provides a state of the art overview of one of the key corporate governance issues of our time.
