What is the Impact of Say on Pay on Executive Compensation? A Meta-Analysis of the Empirical Evidence

• In Event: SESSION 8D: Financial Accounting and Reporting

Abstract

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. We review the literature and conduct a meta-analysis on the relationship between Say on Pay and executive compensation, comprising prior tests derived from 23 primary studies. Existing research has been inconclusive, since 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)). We find that Say on Pay does not reduce executive compensation; however it does change the composition of the compensation. In our judgment, the results are inconsistent with the public interest theory of regulation, which posits that regulation is implemented to improve some public good (reduce executive compensation). The results of this meta-analysis are a function, however, of the underlying studies, and more work needs to be done to measure the impact of Say on Pay adequately.

Authors

• Stephani Mason, Rutgers University

• Dan Palmon, Rutgers University

• Ephraim Sudit, Rutgers University