Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 13: Say on Pay and the Outrage Constraint
Kym Sheehan Say on pay is an important regulatory innovation in the area traditionally dominated by disclosure-based regimes as a targeted transparency policy (Fung et al 2007). That said, say on pay’s success as a regulatory technique depends upon a number of factors, and how it fits within the overall regulatory framework for executive remuneration in any particular jurisdiction can make a major difference to its operation. Improving board of director accountability for executive remuneration decisions – the reason cited to justify regulatory intervention by government into board decision-making on remuneration (HM Treasury 2009a; Productivity Commission 2009) – is not an end in and of itself: improved remuneration practices are. Understanding how the vote fits within a regulatory framework highlights how the ‘say’ relates to the practice of ‘pay’, in the process identifying those levers which can be pulled by shareholders and those that are left for governments in an attempt to achieve this end game of improved remuneration practices. This chapter examines ‘say on pay’ in the first three years after its introduction into law in the UK and in Australia. Section 1 presents the theoretical framework for the study. It begins in section 1.1 by examining the framework for executive remuneration in terms of the economic theories that justify executive remuneration and its regulation. Section 1.2 maps the ‘regulatory space’ (Hancher and Moran 1989) within which four activities (practice, disclosure, engagement and voting) occur in an annual cycle. Using the regulatory space device presents an important departure from previous literature...
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