Say-on-Pay: Is Anybody Listening?

There is an ongoing debate about whether executives receive excessive compensation, and if so, how to control it. Several countries have instituted say-on-pay rules (shareholders’ right to vote on executive compensation) to reduce excessive compensation. However, determining the effectiveness of say-on-pay is difficult because its tenets vary by country due to political, institutional, cultural, economic, and social factors. Policy issues like say-on-pay are complex, ill-structured problems without definitive assumptions, theories, or solutions. Existing say-on-pay research is inconclusive, since some studies find no change in CEO compensation around its adoption, whereas other studies show that say-on-pay lowers CEO pay or changes its composition. This paper chronicles the history of say-on-pay, compares its implementation by groups (e.g. shareholders-initiated versus legislated and binding versus advisory), discusses the complexities of using say-on-pay to address excessive executive compensation, and recommends future research directions.