Will Obama's Executive Pay Provisions Do Any Good? - 19 June 2009

Will Obama's Executive Pay Provisions Do Any Good?

As a concept, so-called "say on pay" provisions--that is, non-binding shareholder votes--would seem to be only "slightly better than nothing" at limiting executive compensation. And this surely explains why Obama, Geithner, and other officials have come under fire for favoring this approach over something bolder.

Yet it is possible to find some limited support for the
effectiveness of say on pay. Studying about 1,300 shareholder proposals
and vote-no campaigns in the US between 1997 and 2007, Yonca Ertimur of Duke, Fabrizio Ferri of Harvard, and Volkan Muslu of the University of Texas found
that dissatisfaction votes do appear to reduce excess CEO pay: Firms
that paid their top execs more than fundamentals would warrant reduced
CEO compensation by an average of $3.1 million after a dissatisfaction
vote.

While the results are largely driven by vote-no campaigns, the
authors also give some credit to say on pay proposals: "a general
dissatisfaction vote against the compensation committee’s choices—such
as a vote-no campaign and a say on pay vote—is much more effective at
dealing with excessive CEO pay" than other proposals that fall under
the category of "micromanaging" executive pay. (This would include caps
on CEO/worker pay ratios or on bonus/salary ratios. The reason that this

more...http://blogs.tnr.com/tnr/blogs/the_stash/archive/2009/06/19/does-say-on-pay-work.aspx