Power to the principals! an experimental look at shareholder say-on-pay voting

Ryan Krause, Kimberly A. Whitler, Matthew Semadeni

Research output: Contribution to journalArticlepeer-review

57 Scopus citations


With recent legislation mandating that publicly traded corporations submit their CEOs' compensation for a nonbinding shareholder vote, a systematic understanding of shareholder preferences has never been so important. In spite of this, relatively little is known about what impacts shareholders' preferences and, subsequently, their ultimate voting behavior. We integrate two theories to help frame the question and to help predict shareholder behavior. Per agency theory, shareholders, as principals, will disapprove of high CEO rewards and poor firm performance, symmetrically assessing gains and losses. Per prospect theory, shareholders will be loss averse, responding much more strongly to being in a loss position than to being in a gain or neutral position. We combine these theories' predictions in two lab experiments in which we simulate a shareholder say-on-pay vote, hypothesizing that shareholders will be concerned with agency costs, but only when they are in a loss position. The results of these simulated votes suggest that shareholders do value pay for performance, in keeping with agency theory. However, shareholders exhibit this focus on agencynormative prescriptions asymmetrically, showing loss aversion in keeping with prospect theory. This finding has significant implications for both theory and practice as shareholder votes become a regular and high-profile occurrence.

Original languageEnglish (US)
Pages (from-to)94-115
Number of pages22
JournalAcademy of Management Journal
Issue number1
StatePublished - Feb 1 2014
Externally publishedYes

ASJC Scopus subject areas

  • Business and International Management
  • General Business, Management and Accounting
  • Strategy and Management
  • Management of Technology and Innovation


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