International Finance Discussion Papers (IFDP)

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July 2013 (Revised March 2014)

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

Ricardo Correa and Ugur Lel

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.

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

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Last Update: June 26, 2020