Top Management Team Pay and Company Performance Before and After Say-on-Pay

Abstract

Top management team pay rose enough to cause an outcry that resulted in companies having to offer shareholders nonbinding say-on-pay votes to approve or disapprove pay beginning in 2011. The votes were supposed to reduce excessive pay, but tests of their efficacy have not yet appeared. This paper tests the efficacy of the votes by examining top management team pay before and after the say-on-pay mandate. Our model explains top management team pay with company characteristics using fixed effects regression and robustness checks. Results from a sample of large U.S. companies suggest that both nominal and real pay fell in the five years before say-on-pay, but do not suggest that pay either fell or rose in the five years after say-on-pay.