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Say on pay laws, executive compensation, CEO pay slice, and firm value around the world

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Abstract

This paper examines the effects of say on pay (SoP) laws on CEO compensation, the portion of top management pay captured by CEOs, and firm valuation. Using a large cross-country sample of about 103,000 firm-year observations from 39 countries, we document that compared to our control group of firms, SoP laws are associated with 1) a lower level of CEO compensation, which partly results from lower CEO compensation growth rates and is related to CEO power, 2) a higher pay for performance sensitivity suggesting that SoP laws have the greatest effects on firms with poor performance, 3) a lower portion of total top management pay awarded to CEOs indicating lower pay inequality among top managers and 4) a higher firm value, which is related to whether the CEO?s share of total top management pay was relatively high before the laws are passed. Further, while both mandatory and advisory SoP laws are associated with lower CEO pay levels, only advisory SoP laws tighten the sensitivity of executive pay to firm performance. Collectively, our results document significant changes in executive compensation policies and firm valuation following the passage of SoP laws around the world.

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  • Ricardo Correa & Ugur Lel, 2013. "Say on pay laws, executive compensation, CEO pay slice, and firm value around the world," International Finance Discussion Papers 1084, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1084
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    2. Zagonov, Maxim & Salganik-Shoshan, Galla, 2018. "CEO Pay Slice as a measure of CEO dominance," Research in International Business and Finance, Elsevier, vol. 45(C), pages 571-576.
    3. Robert W. Odewale & Hasnah Kamardin, 2015. "Directors’ Remuneration Disclosure Transparency in Nigeria and the Influence of Block Share Ownership," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(8), pages 65-78, August.
    4. Ilchechen Coelho, Giselle Cilaine & Fontes Filho, Joaquim Rubens & Buchbinder, Felipe, 2019. "Effects of the Corporate Governance Practices on the Executive Compensation," 7th International OFEL Conference on Governance, Management and Entrepreneurship: Embracing Diversity in Organisations (Dubrovnik, 2019), in: 7th International OFEL Conference on Governance, Management and Entrepreneurship: Embracing Diversity in Organisations. April 5th - 6th, 2019, Dubrovn, pages 41-58, Governance Research and Development Centre (CIRU), Zagreb.
    5. Ghannam, Samir & Matolcsy, Zoltan P. & Spiropoulos, Helen & Thai, Nathan, 2019. "The influence of powerful non-executive Chairs in Mergers and acquisitions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 87-104.
    6. Martin Bugeja & Zoltan Matolcsy & Helen Spiropoulos, 2016. "The Association Between Gender-Diverse Compensation Committees and CEO Compensation," Journal of Business Ethics, Springer, vol. 139(2), pages 375-390, December.

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