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  • Journal of Financial and Quantitative Analysis, Volume 46, Issue 2
  • April 2011, pp. 299-339

Shareholders’ Say on Pay: Does It Create Value?

  • Jie Cai (a1) and Ralph A. Walkling (a2)
  • DOI:
  • Published online: 23 December 2010

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.

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