Executive Compensation : Investor Preferences During Say-on-Pay Votes and the Role of Proxy Voting Advisors

Shareholder say-on-pay votes allow institutional investors to influence the incentives of managers and, consequently, corporate behaviour. Surprisingly, the preferences of investors on executive compensation have been largely overlooked in the ongoing debates on sustainable corporate behaviour. Institutional investors can either entrench the primacy of shareholder interests by demanding companies to link executive pay stronger to metrics associated with shareholder wealth maximisation or promote a more sustainable governance model by encouraging rewarding executives for reducing the company’s negative footprint on its key stakeholders. The analysis of investor disclosed explanations of say-on-pay votes in the FTSE 100 companies during 2013-2021 shows that institutional investors rely repeatedly on several dominant themes and that shareholder interests remain the core focus of say-on-pay votes. Additionally, most investors can be grouped into several clusters formed around the voting recommendations of proxy advisors. A group of UK-based institutional investors stands out by taking more individualistic and diverse approach to the stewardship of executive compensation. These findings highlight the role of local investors in the oversight of executive pay, the growing influence of proxy advisors along with the increasing share of foreign institutional investors, and the influence of best practice governance codes in driving investor stewardship preferences