Skip to main content
SpringerLink
Log in

Let’s talk about money! Assessing the link between firm performance and voluntary Say-on-Pay votes

  • Original Paper
  • Published:
Journal of Business Economics Aims and scope Submit manuscript

Abstract

With the UK Directors’ Remuneration Act and the US Dodd-Frank Act, a decent amount of research has examined so-called Say-on-Pay votes in countries where they are legally mandatory. In contrast, little is known about countries such as Germany or Canada, both of which operate in a voluntary Say-on-Pay (SOP) system. In a voluntary SOP system, the firms’ managers can decide whether to sponsor a vote or not, and it is unclear how this decision and the subsequent voting dissent is influenced by firm performance. To reduce this research gap, this paper analysed a hand-collected sample from Germany covering 1746 annual general meetings that took place between 2010 and 2016. The results indicate that voting likelihood is positively associated with the relative market valuation of the firm (Tobin’s Q) as long as the firm meets or beats analyst earnings forecasts and is negatively associated with free cash flow when the firm fails to meet forecasts. Only large companies with dispersed ownership grant a vote when they do not meet or beat the forecasts. Once the vote has been cast, voting dissent is lower for firms that meet/beat their forecasts and have high free cash flows or high market valuations. However, shareholders do not reward high CSR-performance with less voting dissent. Overall, the results emphasise the importance of financial performance for SOP voting likelihood and voting dissent.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Adams RB, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94:291–309

    Google Scholar 

  • Albertini E (2013) Does environmental management improve financial performance? A meta-analytical review. Organ Environ 26:431–457

    Google Scholar 

  • Alissa W (2014) Boards’ response to shareholders’ dissatisfaction: the case of shareholders’ say on pay in the UK. Eur Account Rev 24:727–752

    Google Scholar 

  • Altınkılıç O, Balashov VS, Hansen RS (2013) Are analysts’ forecasts informative to the general public? Manag Sci 59:2550–2565

    Google Scholar 

  • Aragón-Correa AJ, Sharma S (2003) A contingent resource-based view of proactive corporate environmental strategy. Acad Manag Rev 28:71–88

    Google Scholar 

  • Balsam S, Boone J, Liu H, Yin J (2016) The impact of say-on-pay on executive compensation. J Account Public Policy 35:162–191

    Google Scholar 

  • Bebchuk L, Cohen A, Ferrell A (2009) What matters in corporate governance? Rev Financ Stud 22:783–827

    Google Scholar 

  • Behrmann M, Sassen R (2016) Anwendung des Say on Pay bei deutschen börsennotierten DAX-Unternehmen—Analyse von Determinanten sowie Unternehmens- und Medienreaktionen. Managementforschung, pp 1–36

  • Belghitar Y, Clark E (2015) Managerial risk incentives and investment related agency costs. Int Rev Financ Anal 38:191–197

    Google Scholar 

  • Bessler W, Drobetz W, Holler J (2015) The returns to hedge fund activism in Germany. Eur Financ Manag 21:106–147

    Google Scholar 

  • Bosse DA, Phillips RA, Harrison JS (2009) Stakeholders, reciprocity, and firm performance. Strateg Manag J 30:447–456

    Google Scholar 

  • Briscoe F, Gupta A (2016) Social activism in and around organizations. Acad Manag Ann 10(1):671–727

    Google Scholar 

  • Brunarski KR, Campbell TC, Harman YS (2015) Evidence on the outcome of Say-On-Pay votes: how managers, directors, and shareholders respond. J Corp Financ 30:132–149

    Google Scholar 

  • Burns N, Minnick K (2013) Does Say-on-Pay matter? Evidence from Say-on-Pay proposals in the United States. Financ Rev 48:233–258

    Google Scholar 

  • Campbell JY, Hilscher JD, Szilagyi J (2011) Predicting financial distress and the performance of distressed stocks. J Invest Manag 9:14–34

    Google Scholar 

  • Capelle-Blancard G, Petit A (2017) The weighting of CSR dimensions: one size does not fit all. Bus Soc 56:919–943

    Google Scholar 

  • Claassen D, Ricci C (2015) CEO compensation CEO compensation structure and corporate social performance. Die Betriebswirtschaft (Business Administration Review) 75:327–343

    Google Scholar 

  • Core JE, Guay W, Larcker DF (2008) The power of the pen and executive compensation. J Financ Econ 88:1–25

    Google Scholar 

  • Cullinan CP, Mahoney L, Roush PB (2017) Are CSR activities associated with shareholder voting in director elections and say-on-pay votes? J Contemp Account Econ 13:225–243

    Google Scholar 

  • Cundill GJ, Smart P, Wilson HN (2018) Non-financial shareholder activism: a process model for influencing corporate environmental and social performance. Int J Manag Rev 20(2):606–626

    Google Scholar 

  • Cziraki P, Renneboog L, Szilagyi PG (2010) Shareholder activism through proxy proposals: the European perspective. Eur Financ Manag 16:738–777

    Google Scholar 

  • Dam L, Scholtens B (2013) Ownership concentration and CSR policy of European multinational enterprises. J Bus Ethics 118:117–126

    Google Scholar 

  • Deb P, David P, O’Brien J (2017) When is cash good or bad for firm performance? Strateg Manag J 38:436–454

    Google Scholar 

  • Denes MR, Karpoff JM, McWilliams VB (2016) Thirty years of shareholder activism: a survey of empirical research. J Corp Financ 44:405–424

    Google Scholar 

  • Enriques L, Volpin P (2007) Corporate governance reforms in continental Europe. J Econ Perspect 21:117–140

    Google Scholar 

  • Eulerich M, Kalinichenko A, Theis JC (2014) Say-on-Pay: an empirical investigation of voting likelihood and voting behaviour in German Prime Standard companies. J Manag Control 25:119–133

    Google Scholar 

  • Ferri F, Maber DA (2013) Say on pay votes and CEO compensation: evidence from the UK. Rev Financ 17:527–563

    Google Scholar 

  • Fisch JE, Palia D, Solomon SD (2018) Is say on pay all about pay? The impact of firm performance. Harvard Bus Law Rev 101:101–129

    Google Scholar 

  • Florackis C, Ozkan A (2009) The impact of managerial entrenchment on agency costs: an empirical investigation using UK panel data. Eur Financ Manag 15:497–528

    Google Scholar 

  • Fohlin C (2007) The history of corporate ownership and control in Germany. In: Morck RK (ed) A history of corporate governance around the world. The University of Chicago Press, Chicago, pp 223–277

    Google Scholar 

  • Friede G, Busch T, Bassen A (2015) ESG and financial performance: aggregated evidence from more than 2000 empirical studies. J Sustain Financ Invest 5:210–233

    Google Scholar 

  • Gamerschlag R, Möller K, Verbeeten F (2011) Determinants of voluntary CSR disclosure: empirical evidence from Germany. RMS 5:233–262

    Google Scholar 

  • Gillan SL, Starks LT (2000) Corporate governance proposals and shareholder activism: the role of institutional investors. J Financ Econ 57:275–305

    Google Scholar 

  • Goergen M, Manjon MC, Renneboog L (2008) Recent developments in German corporate governance. Int Rev Law Econ 28:175–193

    Google Scholar 

  • Gompers PA, Ishii JL, Metrick A (2003) Corporate governance and equity prices. Q J Econ 118:107–155

    Google Scholar 

  • Goranova M, Ryan LV (2014) Shareholder activism: a multidisciplinary review. J Manag 40:1230–1268

    Google Scholar 

  • Göx RF, Ferri F (2018) Executive compensation, corporate governance, and say on pay. Found Trends Account 12:1–103

    Google Scholar 

  • Hall PA, Gingerich DW (2009) Varieties of capitalism and institutional complementarities in the political economy: an empirical analysis. Br J Polit Sci 39:449

    Google Scholar 

  • Heckman JJ (1979) Sample selection bias as a specification error. Econometrica 47:153–161

    Google Scholar 

  • Hooghiemstra R, Kuang YF, Qin B (2017) Does obfuscating excessive CEO pay work? The influence of remuneration report readability on say-on-pay votes. Account Bus Res 47:695–729

    Google Scholar 

  • Iliev P, Lins KV, Miller DP, Roth L (2015) Shareholder voting and corporate governance around the world. Rev Financ Stud 28:2167–2202

    Google Scholar 

  • Indjejikian RJ, Matějka M, Merchant KA, van der Stede WA (2014) Earnings targets and annual bonus incentives. Account Rev 89:1227–1258

    Google Scholar 

  • Jo H, Na H (2012) Does CSR reduce firm risk? Evidence from controversial industry sectors. J Bus Ethics 110:441–456

    Google Scholar 

  • Kaplan SE, Zamora VL (2016) The effects of current income attributes on nonprofessional investors’ say-on-pay judgments: does fairness still matter? J Bus Ethics. https://doi.org/10.1007/s10551-016-3315-3

    Article  Google Scholar 

  • Kasznik R, McNichols MF (2002) Does meeting earnings expectations matter? Evidence from analyst forecast revisions and share prices. J Account Res 40:727–759

    Google Scholar 

  • Kimbro MB, Xu D (2015) Shareholders have a say in executive compensation: evidence from say-on-pay in the United States. J Account Public Policy 35:19–42

    Google Scholar 

  • Klassen RD, Whybark CD (1999) The impact of environmental technologies on manufacturing performance. Acad Manag J 42:599–615

    Google Scholar 

  • Lennox CS, Francis JR, Wang Z (2012) Selection models in accounting research. Account Rev 87:589–616

    Google Scholar 

  • Lieder J, Fischer P (2011) The say-on-pay movement—evidence from a comparative perspective. Eur Comp Financ Law Rev 8:376–421

    Google Scholar 

  • Margolis JD, Elfenbein HA, Walsh JP (2009) Does it pay to be good … and does it matter? A meta-analysis of the relationship between corporate social and financial performance. Working Paper

  • Matsunaga SR, Park CW (2001) The effect of missing a quarterly earnings benchmark on the CEO’s annual bonus. Account Rev 76:313–332

    Google Scholar 

  • Maug E, Rydqvist K (2008) Do shareholders vote strategically? Voting behavior, proposal screening, and majority rules. Rev Financ 13:47–79

    Google Scholar 

  • Morgan A, Poulsen A, Wolf J, Yang T (2011) Mutual funds as monitors: evidence from mutual fund voting. J Corp Financ 17:914–928

    Google Scholar 

  • Obermann J (2018) Can management-sponsored non-binding remuneration votes shape the executive compensation structure? Evidence from Say-on-Pay votes in Germany. Eur J Financ 17:1609–1630

    Google Scholar 

  • Obermann J, Velte P (2018) Determinants and consequences of executive compensation-related shareholder activism and say-on-pay votes: a literature review and research agenda. J Acc Lit 40:116–151

    Google Scholar 

  • Orlitzky M, Schmidt FL, Rynes SL (2003) Corporate social and financial performance: a meta-analysis. Organ Stud 24:403–441

    Google Scholar 

  • Powell D, Rapp S (2015) Non-mandatory say on pay votes and AGM participation: evidence from Germany (SAFE Working Paper)

  • Richardson S (2006) Over-investment of free cash flow. Rev Account Stud 11:159–189

    Google Scholar 

  • Ringe W-G (2015) Changing Law and ownership patterns in Germany: corporate governance and the erosion of Deutschland AG. Am J Comp Law 63:493–538

    Google Scholar 

  • Ryan LV, Schneider M (2002) The antecedents of institutional investor activism. Acad Manag Rev 27:554–573

    Google Scholar 

  • Sanders WG, Tuschke A (2007) The adoption of institutionally contested organizational practices: the emergence of stock option pay in Germany. Acad Manag J 50:33–56

    Google Scholar 

  • Sauerwald S, van Oosterhout JH, van Essen M (2016) Expressive shareholder democracy: a multilevel study of shareholder dissent in 15 western european countries. J Manag Stud 53:520–551

    Google Scholar 

  • Singh M, Davidson WN III (2003) Agency costs, ownership structure and corporate governance mechanisms. J Bank Financ 27:793–816

    Google Scholar 

  • Sjöström E (2008) Shareholder activism for corporate social responsibility: What do we know? Sustain Dev 16(3):141–154

    Google Scholar 

  • Skinner DJ, Sloan RG (2002) Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Rev Acc Stud 7:289–312

    Google Scholar 

  • Stathopoulos K, Voulgaris G (2015) The importance of shareholder activism: the case of say-on-pay. Corp Gov 24:359–370

    Google Scholar 

  • Sudarsanam S, Broadhurst T (2012) Corporate governance convergence in Germany through shareholder activism: impact of the Deutsche Boerse bid for London Stock Exchange. J Manag Gov 16:235–268

    Google Scholar 

  • Thomas RS, Van der Elst C (2015) Say on pay around the world. Washington Univ Law Rev 92:653–731

    Google Scholar 

  • Troeger TH, Walz U (2016) Does say on pay matter? Evidence from the German natural experiment. SAFE Working Paper 125

  • van Essen M, Otten J, Carberry EJ (2014) Assessing managerial power theory: a meta-analytic approach to understanding the determinants of CEO compensation. J Manag 41:164–202

    Google Scholar 

  • Velte P (2017) Does ESG performance have an impact on financial performance? Evidence from Germany. JGR 8:169–178

    Google Scholar 

  • Velte P, Weber SC (2011) Outsider- und Insider-Systeme der Corporate Governance. Z Plan Unternehm 21:473–482

    Google Scholar 

  • Vesper-Gräske M (2013) “Say on Pay” in Germany: the regulatory framework and empirical evidence. German Law J 14:749–795

    Google Scholar 

  • Voulgaris G, Stathopoulos K, Walker M (2014) IFRS and the use of accounting-based performance measures in executive pay. Int J Account 49:479–514

    Google Scholar 

  • Wimmer M (2012) ESG-persistence in socially responsible mutual funds. J Manag Sustain 3:9–15

    Google Scholar 

  • Winschel J, Stawinoga M (2019) Determinants and effects of sustainable CEO compensation: a structured literature review of empirical evidence. Manag Rev Q (forthcoming)

Download references

Author information

Authors and Affiliations

  1. Leuphana Universität Lüneburg Fakultät Wirtschaft, Lüneburg, Germany

    Jörn Obermann

Authors
  1. Jörn Obermann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jörn Obermann.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

Excess compensation model according to Core et al. (2008). Random-effects panel regression with robust standard errors. Natural logarithm of total executive board compensation (LOG_TOTAL_COMP) as dependent variable. Independent variables are adjusted to the German capital market and data availability: Natural logarithm of total assets (LOG_TA), market-to-book ratio (MTB), annual market returns (RET), lagged annual market returns (\({\text{RET}}_{\text{t - 1}}\)), return on equity (ROE), lagged return on equity (\({\text{ROE}}_{\text{t - 1}}\)), the change in dividends per share (DPS_DELTA) and dummies for year and industry sector classification based on the first digit of the four digit SIC code.

Predicted compensation calculation

Dependent variable

LOG_TOTAL_COMP

LOG_TA

0.396*** (23.33)

MTB

0.032* (1.82)

RET

0.048 (1.09)

\({\text{RET}}_{{{\text{t}} - 1}}\)

0.085* (1.79)

ROE

0.003*** (2.87)

\({\text{ROE}}_{{{\text{t}} - 1}}\)

0.000 (0.05)

DPS_DELTA

0.016 (0.63)

Year and SIC

Included

CONS

2.390*** (8.75)

Observations

834

Overall R2

78.64

  1. Table bottom lists the number of observations and the overall R2 in percent. T-values are in parentheses. Significance levels: *p < 0.10, **p < 0.05, ***p < 0.01

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Obermann, J. Let’s talk about money! Assessing the link between firm performance and voluntary Say-on-Pay votes. J Bus Econ 90, 109–135 (2020). https://doi.org/10.1007/s11573-019-00931-8

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11573-019-00931-8

Keywords

JEL Classification

Search

Navigation