TITLE

POWER TO THE PRINCIPALS! AN EXPERIMENTAL LOOK AT SHAREHOLDER SAY-ON-PAY VOTING

AUTHOR(S)
KRAUSE, RYAN; WHITLER, KIMBERLY A.; SEMADENI, MATTHEW
PUB. DATE
February 2014
SOURCE
Academy of Management Journal;Feb2014, Vol. 57 Issue 1, p94
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
With recent legislation mandating that publicly traded corporations submit their CEOs' compensation for a nonbinding shareholder vote, a systematic understanding of shareholder preferences has never been so important. In spite of this, relatively little is known about what impacts shareholders' preferences and, subsequently, their ultimate voting behavior. We integrate two theories to help frame the question and to help predict shareholder behavior. Per agency theory, shareholders, as principals, will disapprove of high CEO rewards and poor firm performance, symmetrically assessing gains and losses. Per prospect theory, shareholders will be loss averse, responding much more strongly to being in a loss position than to being in a gain or neutral position. We combine these theories' predictions in two lab experiments in which we simulate a shareholder "say-on-pay" vote, hypothesizing that shareholders will be concerned with agency costs, but only when they are in a loss position. The results of these simulated votes suggest that shareholders do value "pay for performance," in keeping with agency theory. However, shareholders exhibit this focus on agency-normative prescriptions asymmetrically, showing loss aversion in keeping with prospect theory. This finding has significant implications for both theory and practice as shareholder votes become a regular and high-profile occurrence.
ACCESSION #
94699154

 

Related Articles

  • Study shows pay rates of best/worst CEOs. Standley, John // InsideCounsel;Jul/Aug2015, Vol. 26 Issue 282, p9 

    The article discusses a study concerning the compensation and wages of chief executive officers (CEOs) in comparison to the data on shareholder return.

  • CEO Compensation and Acquired and Acquiring Companies in Large Corporate Acquisitions. Simon Yang // International Journal of Financial Management;2016, Vol. 6 Issue 3, p1 

    This paper examines the relative sensitivity of CEO compensation of both acquiring and acquired firms in the top 30 U.S. largest corporate acquisitions in each year for the period of 2003 to 2012. We find that total compensation and bonus granted to executive compensation for acquired companies,...

  • Pay for Talk: How the Use of Shareholder-Value Language Affects CEO Compensation. Shin, Taekjin; You, Jihae // Journal of Management Studies (John Wiley & Sons, Inc.);Jan2017, Vol. 54 Issue 1, p88 

    ABSTRACT The language that signals conformity to a prevailing norm can contribute to the appearance of managerial competency and organizational legitimacy. We argue that top corporate managers' use of language that is congruent with a prevailing norm leads the boards of directors to evaluate the...

  • DETERMINING CEO COMPENSATION STRUCTURE. Khaksari, Shahriar; Mehran, Hamid; Tehranian, Hassan // International Journal of Finance;2009, Vol. 21 Issue 1, p5006 

    We construct a model based on the analytic hierarchy process (AHP) to determine the mix between CEOs' cash and equity-based compensation that maximizes shareholder wealth. The AHP makes it possible to examine a large number of variables and their interactions within the firm, as well as to use...

  • Ownership Effects on Managerial Salaries in Small Business. Cooley, Philip L.; Edwards, Charles E. // Financial Management (1972);Winter82, Vol. 11 Issue 4, p5 

    Lewellen [5] reported substantial ownership interests by executives of large, publicly held corporations, CEO owners of many small, closely held corporations often own even larger percentages of the companies for which they work. Substantial ownership interests presumably lead executives of...

  • Exec Pay Out of Sync with M&A. MOORE, DAVID B. // American Banker;3/8/2011, Vol. 176 Issue 36, p8 

    The article presents the author's view that shareholder groups should create compensation packages for senior executives that are based on shareholders' interests. The discussion topics include agency theory in bank executive compensation, raising capital at a discount to the bank's tangible...

  • EYES ON THE PRIZE. McKenzie, Ana // Business North Carolina;Sep2011, Vol. 31 Issue 9, p37 

    The article reports on the 49.7% increase of the median change in the three-year shareholder return for North Carolina's largest public companies and the 27.9% increase of its chief executive officers' (CEO) compensation in fiscal year 2010-2011. This may reportedly be due to the federal...

  • GREED, HUBRIS AND BOARD POWER: EFFECTS ON FIRM OUTCOMES. HAYNES, KATALIN TAKACS; CAMPBELL, JOANNA TOCHMAN; HITT, MICHAEL A. // Academy of Management Annual Meeting Proceedings;2010, Vol. 2010 Issue 1, p1 

    The article discusses the development of the greed construct in order to identify the boundaries and complementarities of the constructs of managerial greed and hubris. The effects of managerial greed on shareholder wealth is explored and empirical evidence is provided on managerial opportunism,...

  • Managerial Compensation and Firm Performance: Is There Any Relationship? Dittrich, Ludwig; Srbek, Pavel // International Advances in Economic Research;Nov2016, Vol. 22 Issue 4, p467 

    The article focuses on the relationship between managerial compensation and business performance in the U.S. corporate governance setting, in which topics discussed include its impact on potential conflict of interest between agent and principal. Also mentioned are the two fundamental approaches...

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics