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Australia’s ‘two-strikes’ rule and the pay-performance link: Are shareholders judicious?

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  • Monem, Reza
  • Ng, Chew

Abstract

To improve accountability of executive compensation, Australia introduced the ‘say-on-pay’ legislation in 2011, which is widely known as the ‘two-strikes’ rule. We investigate the consequences of this new rule for the pay-performance link in Australian firms. Employing a matched-pair design, we find that pay changes of the chief executive officer and the key management personnel were not significantly positively related to the stock returns of the firms that registered a ‘first strike’ in 2011 under the ‘two-strikes’ rule. However, the relations improved significantly in 2012. Our results also suggest that the shareholders of the ‘first-strike’ firms may have been over-enthusiastic about their voting power in 2011 but exercised this power more judiciously in 2012. Our findings provide important insights for the global debate on governance of executive compensation.

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  • Monem, Reza & Ng, Chew, 2013. "Australia’s ‘two-strikes’ rule and the pay-performance link: Are shareholders judicious?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(2), pages 237-254.
    • Handle: RePEc:eee:jocaae:v:9:y:2013:i:2:p:237-254
    DOI: 10.1016/j.jcae.2013.10.002
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    Cited by:

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    2. Ernest Gyapong & Ammad Ahmed & Collins G Ntim & Muhammad Nadeem, 2021. "Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 603-643, June.
    3. Kanapathippillai, Sutharson & Gul, Ferdinand & Mihret, Dessalegn & Muttakin, Mohammad Badrul, 2019. "Compensation committees, CEO pay and firm performance," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Beaumont, Stacey & Clarkson, Peter & Tutticci, Irene, 2018. "Identifying lobbying strategies: An analysis of public responses to the Productivity Commission Inquiry into executive remuneration in Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 288-306.
    5. Pamela Kent & Kim Kercher & James Routledge, 2018. "Remuneration committees, shareholder dissent on CEO pay and the CEO pay–performance link," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(2), pages 445-475, June.
    6. Ferri, Fabrizio & Göx, Robert, 2018. "Executive Compensation, Corporate Governance, and Say on Pay," Foundations and Trends(R) in Accounting, now publishers, vol. 12(1), pages 1-103, April.

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