Other Unpublished Work | 2012

The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

by Ian D. Gow, Christopher S. Armstrong and David F. Larcker

Abstract

This study examines the effects of shareholder support for equity compensation plans on subsequent chief executive officer (CEO) compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive-compensation. We also find that in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose and shareholders are more likely to approve a plan the following year. Collectively, our results suggest that shareholder votes have little impact on firms' compensation policies and that recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms' compensation policies.

Keywords: Voting; Equity; Executive Compensation; Rights; Performance Effectiveness; Business and Shareholder Relations; Mathematical Methods; Motivation and Incentives;

Citation:

Gow, Ian D., Christopher S. Armstrong, and David F. Larcker. "The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans." 2012.