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Do shareholders vote against executive compensation when pay is misaligned with performance?

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Listed:
  • Gong, James Jianxin
  • Lee, Nian Lim
  • Wang, Sophia I.

Abstract

Using the most recently available data on compensation actually paid (CAP) to CEOs and non-CEO executives, we document a strong and positive relationship between CAP-based pay-performance misalignment and shareholder Say-on-pay (SOP) votes against executive compensation (SOP dissent). The positive relationship between CAP-based misalignment and SOP dissent is stronger when equity constitutes a greater portion of compensation and is weaker when total shareholder return is used to determine CEO non-equity incentive payout. The findings are robust to the use of alternative measures of CAP-based pay-performance misalignment and SOP dissent as well as to the use of an entropy-balanced sample. In contrast, when pay-performance misalignment is based on summary compensation table (SCT) pay, we find an insignificant relationship between pay-performance misalignment and SOP dissent. Overall, we find strong empirical support that shareholders consider CAP-based pay-performance misalignment when casting their SOP votes.

Suggested Citation

  • Gong, James Jianxin & Lee, Nian Lim & Wang, Sophia I., 2025. "Do shareholders vote against executive compensation when pay is misaligned with performance?," Advances in accounting, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:advacc:v:69:y:2025:i:c:s0882611025000161
    DOI: 10.1016/j.adiac.2025.100821
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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