Say on pay effectiveness, corporate governance mechanisms, and CEO compensation alignment

  1. Gregorio Sánchez-Marín 1
  2. Gabriel Lozano-Reina 1
  3. J. Samuel Baixauli-Soler 1
  4. María Encarnación Lucas-Pérez 1
  1. 1 Universidad de Murcia
    info

    Universidad de Murcia

    Murcia, España

    ROR https://ror.org/03p3aeb86

Revista:
Business Research Quarterly

ISSN: 2340-9444,  2340-9436

Ano de publicación: 2017

Volume: 20

Número: 4

Páxinas: 226-239

Tipo: Artigo

DOI: 10.1016/J.BRQ.2017.07.001 DIALNET GOOGLE SCHOLAR lock_openAcceso aberto editor

Outras publicacións en: Business Research Quarterly

Obxectivos de Desenvolvemento Sustentable

Resumo

Say on pay (SOP) is a relatively new governance mechanism that allows shareholders to pronounce on the suitability on executives’ compensation. The literature has mainly examined SOP effects on Anglo Saxon contexts of corporate governance, reporting mixed results and highlighting the need to deepen our understanding of its real impact, as well as its interactions with other mechanisms of governance. Concerning these gaps, the present research analyzes the effectiveness of SOP as a mechanism for aligning CEO compensation in the context of Spanish listed companies – a good representative model of continental European systems of corporate governance–. It also examines the moderating effect of board monitoring and ownership structure. Using panel data and linear regression methodologies on a set of companies from 2013 to 2016, the results show that SOP generally increases the alignment of CEO compensation, although its effectiveness is reduced in companies with overcompensated CEOs and in owner-managed companies.

€ Ver financiamento

Información de financiamento

Financial support from the Research Program of Ministry of Economy and Competitiveness of Spain (Project ECO2014-54301-P) and Fundación Cajamurcia is acknowledged.

Financiadores

Referencias bibliográficas

  • Aguilera, R.F., Cuervo-Cazurra, A., Codes of good governance worldwide: what is the trigger?. Org. Stud. 25:3 (2004), 417–446.
  • Alissa, W., Boards’ response to shareholders’ dissatisfaction: the case of shareholders’ say on pay in the UK. Eur. Account. Rev. 24:4 (2015), 727–752.
  • Armstrong, C.S., Gow, I.D., Larcker, D.F., The efficacy of shareholder voting: evidence from equity compensation plans. J. Account. Res. 51 (2013), 909–950.
  • Armstrong, C.S., Vashishtha, R., Executive stock options, differential risk-taking incentives, and firm value. J. Financ. Econ. 104 (2012), 70–88.
  • Bainbridge, S.M., Is 'say on pay’ justified?. Regulation 32:1 (2009), 42–47 UCLA School of Law, Law-Eco Research Paper, 09-19.
  • Baixauli-Soler, J.S., Sanchez-Marin, G., Organizational governance and TMT pay level adjustment. J. Bus. Res. 64 (2011), 862–870.
  • Baixauli-Soler, J.S., Sanchez-Marin, G., Executive compensation and corporate governance in Spanish listed firms: a principal–principal perspective. Rev. Manag. Sci. 9:1 (2015), 115–140.
  • Balsam, S., Boone, J., Liu, H., Yin, J., The impact of say on pay on executive compensation. J. Account. Public Policy 35 (2016), 162–191.
  • Berrone, P., Gomez-Mejia, L.R., Environmental performance and executive compensation: an integrated agency-institutional perspective. Acad. Manage. J. 52 (2009), 103–126.
  • Boyd, B.K., Board control and CEO compensation. Strat. Manage. J. 15 (1994), 335–344.
  • Brunarski, K.R., Campbell, T.C., Harman, Y.S., Evidence on the outcome of Say-On-Pay votes: how managers, directors, and shareholders respond. J. Corp. Financ. 30 (2015), 132–149.
  • Bushee, B.J., The influence of institutional investors on myopic R&D investment behaviour. Account. Rev. 73 (1998), 305–333.
  • Cai, J., Walking, R., Shareholders’ Say-on-Pay: does it create value?. J. Financ. Quant. Anal. 46:2 (2011), 299–339.
  • Cadbury Code, Report of the Committee on the Financial Aspects of Corporate Governance., 1992, Gee, London.
  • Carpenter, M.A., Sanders, W.G., Top management team compensation: the missing link between CEO pay and firm performance?. Strat. Manage. J. 23 (2002), 367–375.
  • Conyon, M., Peck, S.I., Board control, remuneration committees, and management compensation. Acad. Manage. J. 4 (1998), 135–145.
  • Conyon, M., Sadler, G., Shareholder voting and director’ remuneration report legislation: Say on Pay in UK. Corp. Govern. 18:4 (2010), 296–312.
  • Core, J.E., Guay, W., Larcker, D.F., The power of the pen and executive compensation. J. Financ. Econ. 88:1 (2008), 1–25.
  • Core, J.E., Holfhausen, R.W., Larcker, D.F., Corporate governance, chief executive officer compensation, and firm performance. J. Financ. Econ. 51:3 (1999), 371–406.
  • Correa, R., Lel, U., Say on pay laws, executive compensation, pay slice and firm valuation around the world. J. Financ. Econ. 122:3 (2016), 500–520.
  • David, P., Bloom, M., Hillman, A.J., Investor activism, managerial responsiveness, and corporate social performance. Strat. Manage. J. 28 (2007), 91–100.
  • Deane, S., Say on pay: results from overseas. Corp. Board 28:165 (2007), 11–18.
  • De Andres, P., Azofra, V., Lopez, F.J., Corporate boards in OECD countries: size, composition, compensation, functioning and effectiveness. Corp. Govern. 13 (2005), 197–210.
  • Directors’ Remuneration Report, The Directors’ Remuneration Report, 2002, SI 2002/1986. 2002, Department of Trade and Industry, UK.
  • Ertimur, Y., Ferri, F., Oesch, D., Shareholder votes and proxy advisors: evidence from say on pay. J. Account. Res. 51 (2013), 951–996.
  • European Commission, 2010. Report on the Application by Member States of the EU of the Commission, Discussion Paper, COM(2010) 285 Final European Commission.
  • Ferri, F., Maber, D.A., Say on pay votes and CEO compensation: evidence from the UK. Rev. Financ. 17 (2013), 527–563.
  • Final NYSE Corporate Governance Rules, 2003. New York Stock Exchange. New York, USA.
  • Finkelstein, S., Boyd, B.K., How much does the CEO matter? The role of managerial discretion in the setting of CEO compensation. Acad. Manage. J. 41 (1998), 179–199.
  • Gomez-Mejia, L.R., Wiseman, R., Reframing executive compensation: an assessment and outlook. J. Manage. 23:3 (1997), 291–374.
  • Gordon, J.N., 'say on pay’: cautionary notes on the UK experience and the case for shareholder opt-in. Harv. J. Legis. 46 (2009), 323–341.
  • Greenstone, M., Oyer, P., Vissing-Jorgensen, A., Mandated disclosure, stock returns, and the 1964 Security Acts Amendments. Q. J. Econ. 121:2 (2006), 399–460.
  • Gregory-Smith, I., Thompson, S., Wright, P.W., CEO pay and voting dissent before and after the crisis. Econ. J. 124:574 (2014), F22–F39.
  • Grundfest, J.A., Just vote-no: a minimalist strategy for dealing with barbarians inside the gates. Standford Law Rev. 45 (1993), 857–937.
  • Hair, J.F., Anderson, R.E., Tatham, R.L., Black, W.C., Multivariate data analysis. 5th edition, 1999, Prentice Hall.
  • Hausman, J.A., Specification tests in econometrics. Econome 46 (1978), 1251–1271.
  • Hermalin, B.E., Weisbach, M.S., Boards of directors an endogenously determined institution: a survey of the economic literature. Econ. Policy Rev. 9:1 (2003), 7–26.
  • Holmstrom, B., Moral hazard and observability. Bell J. Econ. 10 (1979), 231–259.
  • Hooghiemstra, R., Kuang, Y., Qin, Y., Say-on-Pay votes: the role of the media. Eur. Account. Rev. 24:4 (2015), 753–778.
  • Ingley, C., Walt, N., Do board processes influence director and board performance? Statutory and performance implications. Corp. Govern.: Int. Rev. 13 (2005), 632–653.
  • Jensen, M.C., Meckling, K.J., Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3:4 (1976), 305–360.
  • Jensen, M.C., Murphy, K.J., Performance pay and top management incentives. J. Polit. Econ. 98:2 (1990), 225–264.
  • Kimbro, M.B., Xu, D., Shareholders have a say in executive compensation: Evidence from Say-on-Pay in the United States. J. Account. Public Policy 34:6 (2016), 19–42.
  • Krause, R., Whitler, K., Semadeni, M., Power to the principals! An experimental look at shareholder say-on-pay voting. Acad. Manage. J. 57 (2014), 94–115.
  • Lambert, R., Larcker, D., Weiglet, K., The structure of organizational incentives. Adm. Sci. Q. 38 (1993), 438–461.
  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Corporate ownership around the world. J. Financ. 54 (1999), 471–517.
  • Ley de Economía Sostenible, 2011. Ley 2/2011, de 4 de marzo. Madrid.
  • Levit, D., Malenko, N., Non-binding voting for shareholder proposals. J. Financ. 66 (2011), 1579–1614.
  • Loveira, R.M., ¿Deberían los accionistas poder votar la retribución de los ejecutivos? Una revisión crítica. Revista Galega de Economía 20:1 (2011), 1–14.
  • Mangen, C., Magnan, M., Say on Pay: a wolf in sheep's clothing?. Acad. Manage. Perspect. 26 (2012), 86–104.
  • Miller, J.S., Wiseman, R.M., Gomez-Mejia, L.R., The fit between CEO compensation design and firm risk. Acad. Manage. J. 45 (2002), 745–756.
  • Morgan, C., Poulsen, A., Wolf, J., The evolution of shareholder voting for executive compensation schemes. J. Corp. Financ. 12 (2006), 715–737.
  • Murphy, K.J., Executive compensation: where we are, and how we got there. Constantinides, G., Harris, M., Stulz, R., (eds.) Handbook of the Economics of Finance, 2A, 2013, Elsevier Science North Holland, New York.
  • Oliver, C., The antecedents of deinstitutionalization. Organization Studies 13:4 (1992), 563–588.
  • Pagnattaro, M.A., Greene, S., Say on Pay: The movement to reform executive compensation in the United States and European Union. N. J. Int. Law Bus. 31 (2011), 593–636.
  • Sanchez-Marin, G., Baixauli-Soler, J.S., Lucas-Perez, M.E., When much is not better? Top management compensation, board structure and performance in Spanish firms. Int. J. Hum. Resour. Manage. 21:15 (2010), 2778–2797.
  • Sanchez-Marin, G., Baixauli-Soler, J.S., Lucas-Perez, M.E., Ownership structure and board effectiveness as determinants of TMT compensation in Spanish listed firms. J. Bus. Econ. Manage. 12:1 (2011), 92–109.
  • Sanchez-Marin, G., Baixauli-Soler, J.S., CEO reputation and top management team compensation. Manage. Decis. 52:3 (2014), 540–558.
  • Stathopoulos, K., Voulgaris, G., The importance of shareholder activism: the case of say on pay. Corp Govern.: Int. Rev. 24:3 (2016), 359–370.
  • Tosi, H.L., Gomez-Mejia, L.R., CEO compensation monitoring and firm performance. Acad. Manage. J. 37 (1994), 1002–1016.
  • Tosi, H.L., Werner, S., Katz, J.P., Gomez-Mejia, L.R., How much does performance matter? A meta-analysis of CEO pay studies. J Manage. 26 (2000), 301–339.
  • Westphal, J.D., Zajac, E.J., Substance and symbolism in CEOs’ long-term incentive plans. Adm. Sci. Q. 39 (1994), 367–390.
  • Westphal, J.D., Zajac, E.J., Accounting for the explanations of CEO compensation: substance and symbolism. Adm. Sci. Q. 40 (1995), 283–308.
  • Westphal, J.D., Zajac, E.J., The symbolic management of stockholders: corporate governance reforms and shareholder reactions. Adm. Sci. Q. 43 (1998), 127–153.
  • Young, M.N., Peng, M.W., Ahlstrom, D., Brunton, G.D., Jian, Y., Corporate governance in emerging economies: a review of the principal-principal perspective. J. Manage. Stud. 5:1 (2008), 196–220.
Fonte de datos: Dialnet