Abstract
This paper examines the connection between shareholder voting outcome (percent in favor or opposed) and executive equity-based incentives (pay-performance sensitivity and pay-risk sensitivity) as part of the "Say-on-Pay" provision of the 2010 Dodd-Frank Act. Our setting allows us to directly test whether shareholders perceive equity-based incentives as a source of or solution to agency problems. Consistent with our hypotheses, we provide evidence that shareholders tend to approve of compensation packages that are more sensitive to changes in stock price (pay-performance sensitivity) and changes in stock volatility (pay-risk sensitivity). Our findings are generally consistent with theoretical predictions that outside owners approve of equity incentives as a means of aligning managers interests with those of shareholders and as a way to mitigate potential agency costs.
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