Say-on-pay, corporate governance, and executive compensation

  1. Gabriel Lozano Reina
Supervised by:
  1. Juan Samuel Baixauli Soler Director
  2. Gregorio Sánchez Marín Director

Defence university: Universidad de Murcia

Year of defence: 2020

  1. Domingo Enrique Ribeiro Soriano Chair
  2. Antonia Madrid Guijarro Secretary
  3. Darek Haftor Committee member

Type: Thesis


Executive compensation is one of the research topics to arouse both the greatest interest and controversy in literature. The scarce effectiveness shown by traditional corporate governance mechanisms - such as the board of directors - has been brought to light, and their supervisory role regarding the design of compensation packages aligned with company interests is questionable. In this context, new complementary corporate governance mechanisms have emerged in recent years in listed companies and have attracted the attention of researchers. One of the most relevant mechanisms is Say-on-Pay (SOP). The main goal of SOP is to increase shareholder power - when deciding on the suitability of executive pay design in listed companies - through a vote cast at the general shareholders' meeting in which shareholders express their opinion on executive compensation (by voting in favor, against or by abstaining). The current lack of consensus in the literature vis-à-vis the impact of SOP on the corporate governance of listed companies, coupled with the absence of any conclusive evidence concerning its effectiveness in executive compensation, advocates the need to deepen the analysis into SOP. Considering the main motivations and challenges stated by SOP-related literature, four main goals are addressed in this doctoral thesis: first, to carry out a systematic literature review so as to analyze and summarize relevant studies on SOP, and thus find common patterns about SOP effectiveness in terms of executive pay alignment and thereby identify the main lines of research to be addressed in future studies; second, to test the impact of SOP on CEO (chief executive officer) compensation by examining the moderating role played by boards of directors and ownership structure; third, to test the influence of managerial discretion in the existing relationship between SOP and executive compensation design; finally, to examine the influence of the family firm in shareholders' voting behavior and SOP voting. In particular, this systematic literature review employs a specific methodology to locate research, analyze and synthesize the data, and to report the evidence so that it clarifies the conclusions reached about what is and what is not known about SOP-related literature. In addition, in order to find some common patterns in SOP effectiveness, we use Categorical Principal Components Analysis (CATPCA). Moreover, those empirical chapters opted for a panel methodology or linear regressions, using a sample of Spanish listed companies (second chapter) or a sample of large United Kingdom listed-companies (third and fourth chapter). Overall, this doctoral thesis aims to contribute to this research field in the following ways: first, by analyzing and reviewing the state of SOP-related literature, by integrating all the evidence obtained in a model that illustrates the main existing relationships, in addition to stating some common patterns regarding SOP effectiveness; second, by increasing existing knowledge on the effectiveness of this vote in executive compensation design; third, by examining and verifying how the board of directors, ownership structure, and managerial discretion are relevant factors that exert a significant influence on SOP effectiveness in relation to its ability to design more aligned pay for CEOs; and finally, by expanding the scant current knowledge on shareholder voting behavior in SOP by contextualizing this analysis in the specific case of family businesses and how their diverse corporate governance configurations - in terms of ownership, management, and generation - may affect SOP results.