Journal of Financial and Quantitative Analysis

Research Articles

Shareholders’ Say on Pay: Does It Create Value?

Jie Caia1 and Ralph A. Walklinga2

a1 LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104.

a2 LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104.


Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal chief executive officer (CEO) compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist-sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor-sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation but can destroy value for others.

(Online publication December 23 2010)


We thank Anup Agrawal, David Becher, Hendrik Bessembinder (the editor), N. K. Chidambaran, Jay Dahya, Naveen Daniel,Daniel Dorn, Fabrizio Ferri, Eli Fich, Jacqueline Garner, Ami Jacaranda, Jon Karpoff, Simi Kedia, Ronald Masulis (associate editor and referee), David Pedersen, David Reeb, Joe Rizzi, Laura Starks, David Yermack, Adam Yore, and seminar participants at Drexel University, Chinese University of Hong Kong, Singapore Management University, Temple University, 2008 Villanova Mid-Atlantic Research Conference in Finance, 2008 New York University Issues in Executive Compensation Conference, 2008 FMA European Meetings, 2008 Financial Management Association (FMA) Annual Meetings, 2009 FMA Asian Meetings, and 2009 American Law and Economics Association Annual Meetings for their comments. The authors have also benefited from comments and presentations by Stephen Bainbridge and Harvey Goldschmid at the 2008 University of Pennsylvania say-on-pay debate.