David F. Larcker is the James Irvin Miller Professor of Accounting at the Stanford Graduate School of Business. Lucia Song is a Research Analyst and Courtney Yu is Director of Research at Equilar Inc. This post is based on a recent paper by Mr. Larcker, Ms. Song, Mr. Yu, Amit Batish, and Brian Tayan.
When “say on pay” was legislated in the U.S. under the Dodd Frank Act of 2010, many observers hoped an advisory vote on executive compensation would provide a catalyst to “reign in” CEO pay that was perceived to be out of control. Nearly a decade and a half later, the perception of what say on pay can accomplish has changed significantly, in large part because of the unexpectedly high support pay packages usually receive. Over the last 14 years, companies in the Russell 3000 Index received average support of 91 percent for their pay programs. Moreover, average support has proven remarkably stable, fluctuating narrowly between a low of 89.2 percent (in 2022) and a high of 91.7 percent (in 2017). Meanwhile, the annual failure rate (companies receiving less than 50 support) averaged a mere 2 percent (see Exhibit 1). These results are hardly indicative of widespread displeasure among shareholders.
