Shareholder Proposals on Executive Compensation

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Abstract
We examine 169 shareholder proposals on executive compensation filed against 106 firms by 74 sponsors over the period 1992-95. We find the probability of receiving a proposal is associated with the firm?s executive compensation policies, firm performance, and the composition of the shareholder base, but is unassociated with the existence of alternative monitoring mechanisms. Voting outcomes are associated with firm performance, the shareholder base, and the proposal sponsor, but are unassociated with the structure of executive compensation or the existence of alternative monitoring mechanisms. We find no evidence that proposals put to a vote trigger subsequent changes in executive compensation policies. However, 20% of proposals are withdrawn prior to a vote. Withdrawal occurs when the proposal sponsor and target firm reach an accomodation (IRRC 1996). A plurality (41%) of withdrawn proposals deal with the independence of the compensation committee. Additionally, two-thirds of the proposals on compensation committee independence are subsequently withdrawn. To the extent that shareholder proposals on executive compensation lead to changes in compensation policies, it is through the indirect mechanism of increased compensation committee independence.

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