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Executive compensation: investor preferences during say-on-pay votes and the role of proxy voting advisers

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  • Gomtsian, Suren

Abstract

Shareholder say-on-pay voting allows institutional investors to influence the incentives of managers and, consequently, corporate behaviour. Surprisingly, the preferences of investors on executive compensation have been largely overlooked in the ongoing debates on the role of say-on-pay in corporate governance and the impact of shareholder stewardship on sustainable corporate behaviour. The analysis of investor disclosed explanations of say-on-pay votes in the FTSE 100 companies during 2013–2021 shows that institutional investors rely repeatedly on several dominant themes aimed at improving the incentives of corporate managers and controlling managerial rent extraction. But shareholder interests remain the core focus of say-on-pay votes, with only few investors demanding that companies reward executive directors for protecting the interests of a broader range of affected stakeholders. Additionally, most investors can be grouped into several clusters formed around the voting recommendations of proxy advisers. A group of UK-based institutional investors stands out by taking a more individualistic and diverse approach to the stewardship of executive compensation. These findings highlight the role of local investors in the oversight of executive pay, the growing influence of proxy advisers along with the increasing share of foreign institutional investors, and the influence of best practice governance codes in driving investor stewardship preferences.

Suggested Citation

  • Gomtsian, Suren, 2024. "Executive compensation: investor preferences during say-on-pay votes and the role of proxy voting advisers," LSE Research Online Documents on Economics 120792, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:120792
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    File URL: http://eprints.lse.ac.uk/120792/
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    Keywords

    and governance (ESG); corporate governance; environmental; executive pay; investor stewardship; say on pay; shareholder engagement; social;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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