FRB: Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value Around the World

International Finance Discussion Papers

Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value Around the World
Ricardo Correa and Ugur Lel
2013-1084 (July 2013, latest version March 2014)

Abstract: Using a sample of about 90,000 observations from 38 countries over the 2001-2012 period, we provide three novel findings regarding say on pay (SoP) laws. First, we find robust evidence that SoP laws reduce CEO pay growth rates at firms. Second, such laws decrease the portion of total top management pay captured by CEOs. Firm values are higher following SoP laws in part because of this reduction in managerial pay inequality. Third, mandatory SoP laws only affect the CEO pay growth rates whereas advisory SoP laws influence various aspects of executive pay policies. These results are robust to instrumental variable estimation and nearest neighbor matching methods.

Full paper, latest version (590 KB PDF) | Original version (1,042 KB PDF)

Keywords
Executive compensation, binding and advisory say on pay laws, regulations, CEO pay slice, firm valuation, international

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Last update: March 31, 2014