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Shareholder Activism and CEO Pay

Yonca Ertimur, Duke University
Fabrizio Ferri, Harvard Business School
Volkan Muslu, University of Texas at Dallas

ABSTRACT: CEO pay has become a major governance concern among investors in recent years, raising the question of whether monitoring mechanisms available to shareholders are sufficient. We study a sample of 134 vote-no campaigns and 1,198 non-binding shareholder proposals related to executive pay between 1997 and 2007. We find that shareholders are sophisticated enough to identify firms with excess CEO pay both when targeting firms and when casting their votes. Proposals to micromanage level or structure of CEO pay receive little voting support. Instead, shareholders favor proposals related to the pay setting process (e.g., subject certain compensation items to shareholder approval). These proposals are also more likely to be implemented. In some cases, compensation-related activism has a moderating effect on CEO pay levels. Our findings contribute to the current debate on the proposed adoption of a “say on pay” shareholder vote on executive pay.

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