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Equity‐based incentives and shareholder say‐on‐pay

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  • Denton Collins
  • Blair B. Marquardt
  • Xu Niu

Abstract

We study the relationship between CEO pay‐performance sensitivity, pay‐risk sensitivity, and shareholder voting outcomes as part of the “say‐on‐pay” provision of the 2010 US Dodd‐Frank Act. Consistent with our hypothesis, we provide evidence that shareholders tend to approve of compensation packages that are more sensitive to changes in stock price (pay‐performance sensitivity). Our findings are consistent with theoretical predictions that outside owners approve of equity incentives as a means of aligning managers' interests with those of shareholders. We also document that future changes to equity‐based incentives are related to voting outcomes and that shareholders incorporate CFO incentives into their votes. Collectively, these results provide evidence of the importance of equity‐based incentives from the perspective of those most concerned with firm value and of the effectiveness of say‐on‐pay as a governance mechanism.

Suggested Citation

  • Denton Collins & Blair B. Marquardt & Xu Niu, 2019. "Equity‐based incentives and shareholder say‐on‐pay," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 46(5-6), pages 739-761, May.
    • Handle: RePEc:bla:jbfnac:v:46:y:2019:i:5-6:p:739-761
    DOI: 10.1111/jbfa.12373
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    Cited by:

    1. Canil, Jean & Karpavičius, Sigitas & Li, Shihe & Yu, Chia-Feng, 2022. "Say on mobility:Do CEO outside opportunities affect shareholder say on pay?," Finance Research Letters, Elsevier, vol. 47(PB).
    2. Kou, Zonglai & Tang, Yue & Wu, Hong & Zhou, Min, 2023. "Ownership, volatility, and equity incentives: Theory and evidence from listed companies in China," Economic Modelling, Elsevier, vol. 128(C).

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