The Impact of Investor Horizon on Say-on-Pay Voting

Abstract

Shareholder investment horizons have a significant impact on say-on-pay voting patterns. Short-term investors are more likely to avoid expressing opinion on executive pay proposals by casting an abstaining vote. They vote against board proposals on pay only in cases where the CEO already receives excessive pay levels. In contrast, long-term investors typically cast favourable votes. According to our findings, this is due to effective monitoring rather than collusion with the management. Overall, investor heterogeneity in terms of investment horizons helps explain say-on-pay voting, in particular the low levels of say-on-pay dissent, which have recently raised questions over the efficiency of this corporate governance mechanism.