The Value of Say on Pay

Abstract

We measure the impact of "say on pay" (SoP) - mandatory shareholder votes on top management
compensation - on the market value of voting rights. By exploiting the
staggered introduction of SoP across 14 economies, we show that SoP does not automatically
increase the value of shareholder voting rights. While stricter binding SoP
reforms increase voting values, looser advisory SoP laws decrease them. Firms that do
not pay their CEOs excessively experience the largest decreases in voting values. Voting
values also reflect a country's level of investor protection, past dissent in SoP ballots,
and dynamically adjust to changes in managerial compensation.

Keywords: Say on Pay, Corporate Voting Rights, Corporate Governance, Option Pricing

JEL Classification: G13, G32, G34