McCahery, Joseph A.; Sautner, Zacharias --- "Institutional Investor Preferences and Executive Compensation" [2012] ELECD 610; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 12

Section Title: Institutional Investor Preferences and Executive Compensation

Author(s): McCahery, Joseph A.; Sautner, Zacharias

Number of pages: 14

Extract:

12 Institutional investor preferences and executive
compensation
Joseph A. McCahery and Zacharias Sautner


1 INTRODUCTION

Over the last two decades, institutional investing has become an important component
of financial markets (e.g., Gillan and Starks (2007)). The increase in institutional owner-
ship has been accompanied by an enhanced role played by institutions in monitoring the
corporate governance behavior of companies. Among other things, institutional inves-
tors ascertain whether companies comply with the best practice standards elaborated
in the guidelines established by corporate governance bodies, pursue proxy voting
challenges at annual meetings or conduct coordinated shareholder activism.
Prior research has studied the participation of institutional investors in targeting
poorly performing firms and pressuring boards of directors to improve corporate per-
formance. In recent years, activist institutions in the United States (US) have made use
of a federally mandated privilege to submit shareholder proposals included in the man-
agement's annual proxy statement for a vote at the annual general meeting (see Thomas
and Cotter (2007)). The proposal process provides a mechanism for shareholders to raise
corporate governance and performance concerns and to pressure boards to implement
the proposed changes. Most proposals submitted by investors (other than hedge funds)
relate to the elimination of anti-takeover devices, executive compensation, the board of
directors and voting rules. In the last decade, hedge funds have embraced activist strate-
gies, taking investment stakes in underperforming firms and directly engaging manage-
ment to undertake changes that are favorable for outside shareholders and their financial
agenda (e. ...