The Importance of Shareholder Activism: The Case of Say‐on‐Pay

Abstract

Manuscript Type Review Research Question/Issue This study focuses on the role of Say‐on‐Pay as a mechanism that aims to promote the efficiency of corporate governance by providing an additional channel for the expression of shareholder “voice.” Initially introduced in the UK, Say‐on‐Pay has subsequently been adopted in a large number of countries and it has recently received significant attention from regulators, media, and the general public. The purpose of this study is to review prior literature related to Say‐on‐Pay and its impact on firm value and corporate decision making. Research Findings/Insights Our study highlights the interdisciplinary nature of research on Say‐on‐Pay. We also shed light on conceptual gaps and empirical discrepancies in prior studies, indicating that many questions linked to Say‐on‐Pay and its importance for the executive pay‐setting process remain largely unanswered. Theoretical/Academic Implications At a theoretical level, we highlight potential areas for development of the existing theoretical framework for Say‐on‐Pay, which is at present rather limited and primarily influenced by agency theory. At an empirical level, we propose a substantial number of avenues for fruitful future research on this topic. Practitioner/Policy Implications In the light of recent proposals for extending the role of Say‐on‐Pay within the corporate governance framework, our findings are particularly relevant to regulators. More thought is needed about changing its nature from advisory to binding, as the degree of its effectiveness and the dynamics of the voting process are still unclear. Our study could also be informative for the media and the general public, especially given the increasing attention afforded to Say‐on‐Pay.

Gender diversity and say‐on‐pay: Evidence from UK remuneration committees

“…Recent financial crises and scandals have created public anger and unrest regarding remuneration packages, which have led to calls for the reform of remuneration policies. The United Kingdom was the first country to introduce a mandatory nonbinding shareholder vote on the remuneration package in late 2002 (Stathopoulos & Voulgaris, ). This voting approach is known as the “say‐on‐pay,” a tool which can be used by shareholders to express dissent about the recommendations made in remuneration reports (Mallin, ; Mangen & Magnan, ).…”

“…Recent financial crises and scandals have created public anger and unrest regarding remuneration packages, which have led to calls for the reform of remuneration policies. The United Kingdom was the first country to introduce a mandatory nonbinding shareholder vote on the remuneration package in late 2002 (Stathopoulos & Voulgaris, 2015).…”

“…This voting approach is known as the "say-on-pay," a tool which can be used by shareholders to express dissent about the recommendations made in remuneration reports (Mallin, 2016;Mangen & Magnan, 2012). Since then, many research studies have investigated the antecedents and the consequences of say-on-pay voting (for recent reviews, see Stathopoulos & Voulgaris, 2015;Obermann & Velte, 2018). Among some of these antecedents that most affect shareholder dissent via say-on-pay voting are higher CEO remuneration, firm performance and firm size, and weak boardroom governance (Alissa, 2015;Conyon, 2016;Conyon & Sadler, 2010;Ferri & Maber, 2013;Gregory-Smith, Thompson, & Wright, 2014).…”

“…We focus on the role of say-on-pay as a mechanism that aims to reduce agency problems and to promote the efficiency of corporate governance by providing an additional tool for shareholders' interventions in firms' governance via the "voice" channel rather than the "exit" channel (Hillman, Shropshire, Certo, Dalton, & Dalton, 2011;Mangen & Magnan, 2012;Stathopoulos & Voulgaris, 2015). Among the various corporate governance mechanisms that institutional investors may choose to utilize to engage with their investee companies, voting is considered the least costly for shareholders (Goranova & Ryan, 2014).…”

Shareholder voting in China: The role of large shareholders and institutional investors

“…On one hand, shareholder voting is important for managers to implement shareholder proposals that can enhance firm value (e.g., Cuñat, Gine, & Guadalupe, 2012;Hermanson, Rama, & Ye, 2019). In addition, shareholder voting plays an important role in monitoring management proposals, including electing directors (Aggarwal, Dahiya, & Prabhala, 2019;Cai, Garner, & Walkling, 2009), making acquisitions (Becht, Polo, & Rossi, 2016Li, Liu, & Wu, 2018, deciding equity issuances (Holderness, 2018), and determining executive pay (Stathopoulos & Voulgaris, 2016a, 2016b.…”