The Economic Consequences of Proxy Advisor Say-on-Pay Voting Policies

David F. Larcker, Allan L. McCall and Gaizka Ormazabal
Additional contact information
David F. Larcker: Rock Center for Corporate Governance, Stanford University
Allan L. McCall: Stanford University
Gaizka Ormazabal: University of Navarra

Research Papers from Stanford University, Graduate School of Business

Abstract: This paper examines changes in executive compensation programs made by firms in response to proxy advisory firm say-on-pay voting policies. Using proprietary models, proxy advisory firms, primarily Institutional Shareholder Services and Glass, Lewis & Co., provide institutional shareholders with a "for" (positive) or "against" (negative) recommendation on the required management say-on-pay proposal in the annual proxy statement. Analyzing a large sample of firms from the Russell 3000 that are subject to the initial say-on-pay vote mandated by the Dodd-Frank Act, we find three important results. First, proxy advisory firm recommendations have a substantive impact on say-on-pay voting outcomes. Second, a significant number of firms change their compensation programs in the time period before the formal shareholder vote in a manner consistent with the features known to be favored by proxy advisory firms apparently in an effort to avoid a negative recommendation. Third, the stock market reaction to these compensation program changes is statistically negative. Thus, the proprietary models used by proxy advisory firms for say-on-pay recommendations appear to induce boards of directors to make choices that decrease shareholder value.

JEL-codes: G10 G30 K20 L50 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-cdm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://gsbapps.stanford.edu/researchpapers/library/RP2105.pdf
Our link check indicates that this URL is bad, the error code is: 400 Bad Request (https://gsbapps.stanford.edu/researchpapers/library/RP2105.pdf [302 Found]--> https://login.stanford.edu/idp/profile/SAML2/Redirect/SSO?SAMLRequest=fZJdb4IwFIb%2FCum9FFARGyFhejETN42wXexmKXCQJrVlPWUf%2F34oLtMbr%2Fue55z3SRfIj7JlaWcbtYePDtA630epkJ0fYtIZxTRHgUzxIyCzJcvSpw0LXI%2B1RltdakmcFBGMFVottcLuCCYD8ylKeNlvYtJY2yKj9IAFb1t00XJVa1O5UHU0a0RRaAm2cRE1PbEDuttmOXFW%2FTFC8RP2HyL1QahbhKha2p9SCwmX%2BT1UwkBpaZZtibNexeS9DmeFNwvn06gK55M6mPKxF1W1FwU1RJNJ2McQO1irE9rGJPCCcOT5Iz%2FMvZAFY%2BZHb8TZXRo%2FCFUJdbivpxhCyB7zfDcaOr2CwXOfPkCSxUkyOy82V9rvY%2Fmfa5LcNbugV%2FRhVcuee9x6tdNSlD9OKqX%2BWhrgFmLiE5oMI7ffIfkF&RelayState=ss%3Amem%3A8792e057a333ee50260f00f7e3c24f80ca7267853b62848300c9e6deb04e6d12)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:2105

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().