The Advisors' Blog

– Lynn Jokela

In this recent paper, three law & business profs ran some stats on “Say-on-Golden-Parachute” votes.  Here’s an excerpt from the abstract:

We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes.  Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation.

First proxy advisors seem more likely to adopt a one-size-fits-all approach to recommendations on SOGP votes.  Second, shareholders are more likely to adhere to advisor recommendations.  Finally, the size of golden parachutes appears to be increasing in the years since the adoption of the Dodd-Frank Act in 2010, and the golden parachutes that are amended immediately prior to SOGP votes tend to grow rather than shrink.

These findings contrast with the research that has examined Say on Pay (“SOP”), and we suggest that the differences between the two regimes lie in the absence of second-stage, market-based discipline for SOGP votes.  We offer potential avenues for improving SOGP’s ability to shape change-in-control compensation practices, such as making SOGP votes (partially) binding, and making the GP payment and SOGP voting information more readily available to shareholders of corporations where the target directors also serve as directors of acquiring corporations.