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George Washington Law Review

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Say on Pay, Dodd-Frank, Empirical, ISS


Business Organizations Law | Commercial Law | Law


Using voting data from the first year of say-on-pay votes under Dodd- Frank, we look at the patterns of shareholder voting in advisory votes on exec- utive pay. Consistent with the more limited say-on-pay voting before Dodd- Frank, we find that shareholders in the first year under Dodd-Frank generally gave broad support to management pay packages. But not all pay packages received strong shareholder support. At some companies, management suf- fered the embarrassment of failed say-on-pay votes-that is, less than fifty per- cent of their company's shareholders voted in favor of the proposal. In particular, we find that poorly performing companies with high levels of "ex- cess" executive pay, low total shareholder return, and negative Institutional Shareholder Services ("ISS") voting recommendations experienced greater shareholder "against" votes than at other firms.

Although say-on-pay votes are non-binding and corporate boards need not take action even if the proposal fails, most companies receiving negative ISS recommendations or experiencing low levels of say-on-pay support under- took additional communication with shareholders or made changes to their pay practices, reflecting a shift in the management-shareholder dynamic. Dur- ing 2012, the second year of say-on-pay under Dodd-Frank, we find similar patterns, with companies responding proactively to an unfavorable ISS rec- ommendation or a prior failed (or even weak) say-on-pay vote in 2011. We use four case studies to illustrate this new corporate governance dynamic, which we view as an important consequence of the Dodd-Frank Act.



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