Say on pay laws, executive compensation, pay slice, and firm valuation around the world

Correa, Ricardo; Lel, Uǧur

doi:10.1016/j.jfineco.2016.09.003

Cited by 153 publications

(107 citation statements)

References 38 publications

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“…Correa and Lel (2016) improve on this with a di¤erence-in-di¤erences approach using 38 countries over [2001][2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012], of which eleven passed say-on-pay laws during that period. The laws are associated with CEO pay levels falling by 7%, pay-performance sensitivity rising by 5% (they do not study wealth-performance sensitivity), and …rm values increasing by 2.4%.…”

Section: Potential Areas For Reformmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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Section: Potential Areas For Reformmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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“…This result provides support for regulation and suggests that say-on-pay regimes may induce greater leverage. This result may motivate further empirical work because Correa and Lel (2016) show that say-on-pay laws have lead to substantial changes in executive compensation.…”

Section: Discussionmentioning

confidence: 95%

“…The U.S. is also discussing new rules to curb executive compensation in …nancial institutions (Wall Street Journal 2016). Correa and Lel (2016) document that eleven countries have passed laws to give shareholders direct in ‡uence on executive compensation policies (i.e., say on pay laws).…”

Section: Introductionmentioning

confidence: 99%

Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation

Gete

Gomez

2018

Quart. J. of Fin.

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We study policies that regulate executive compensation in a model that jointly determines executives'e¤ort, compensation and …rm leverage. The market failure that justi…es regulation is that executives are optimistic about asset prices in states of distress. We show that shareholders propose compensation packages that lead to socially excessive leverage. Say-on-pay regulation does not reduce the incentives for leverage. Regulating the structure of compensation (but not its level) with a cap on the ratio of variable-to…xed pay delivers the right leverage. However, it is more e¢ cient to directly regulate leverage because restricting the variable compensation impacts managerial e¤ort more than if shareholders are free to design compensation subject to a leverage constraint.

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“…Some countries had adopted 'say-on-pay' laws or guidance prior to the financial crisis and, based on an international sample of firms from 38 countries over the 2001-2012 period, Correa and Lel (2016) report that after the adoption of 'say-onpay' laws, CEO pay declined by 7% and the sensitivity of CEO pay to firm performance increased by 5%. These effects are mainly in firms with high levels of pay, with long-CEO tenure, with less independent boards, and a history of shareholder dissent.…”

Section: Figure 1 Average Fixed (Salary) and Variable (Bonuses) Pay mentioning

confidence: 99%

Introduction to Special Issue on Sustainable Corporate Governance

Tonks

Goergen

2019

British J of Management

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Papers in this special issue focus on sustainable corporate governance measures in the aftermath of the financial crisis, and a background environment of increased scepticism over executive pay and corporate behaviour more generally. The authors provide an overview of recent corporate governance reforms, including 'say-on-pay' and gender-pay-gap transparency, and explain how the research papers in the special issue contribute to understanding of corporate governance research and practice in the areas of boards of directors, corporate governance reform and corporate culture and risk-taking.The authors would like to thank the members of the scientific committee for this special issue with the selection and reviewing of the paper submissions: Christian

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Say on pay laws, executive compensation, pay slice, and firm valuation around the world

Cited by 153 publications

References 38 publications

Executive Compensation: A Survey of Theory and Evidence

Executive Compensation: A Survey of Theory and Evidence

Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation

Introduction to Special Issue on Sustainable Corporate Governance

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