The Voice of Corporate Governance Shareholder Voice and Executive Compensation with John Barry
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Feb 20, 2025 
Join John W. Barry, Assistant Professor of Finance at Rice University and expert in corporate governance, as he dives into the nuances of executive compensation. He clarifies the concept of 'Say on Pay' and discusses its surprisingly high support despite being non-binding. Barry reveals that failed votes create costly consequences for boards, effectively disciplining compensation decisions. Fascinatingly, he highlights that Say on Pay can increase firm value by about 2% by reducing agency frictions. The conversation also explores the pitfalls of binding votes in governance.
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What Say On Pay Actually Is
- Say on Pay is an annual, non-binding shareholder vote on past-year executive compensation policy.
- Despite high average support rates above 90%, its non-binding nature doesn't imply ineffectiveness.
Impact Comes From The Threat
- The true effect of Say on Pay comes from the ex ante threat of discipline, not the ex post vote outcome.
- Barry models board and shareholder preferences to estimate how that threat reshapes compensation policy.
Costly Punishment Mechanism
- Say on Pay functions as a costly punishment mechanism because both boards and shareholders dislike failures.
- That mutual aversion makes the off-equilibrium threat of punishment credible and disciplines compensation policy.