“When Shareholders and Managers Disagree: Evidence from shareholder voting” by Stuart Gillan
University of Georgia
Golden parachutes, or change in control payments, to executives when a firm is sold are controversial. Indeed, the level of concern is such that the Dodd-Frank Act mandated that firms hold an advisory (or non-binding) vote on such payments. We study 446 mergers between 2011 and 2015 and find that Institutional Shareholder Services (ISS) recommendations and shareholder support for golden parachutes varies with deal, firm, and parachute characteristics. Specifically, we find that votes against parachutes increase with the payment amount and the presence of single-triggers and tax gross-ups. In contrast, while firm size is positively associated with ISS against recommendations, against votes are lower for those with a higher deal premium. Finally, we find little evidence that dissatisfaction with parachutes adversely affects voting for the deal itself or the labor market prospects of directors overseeing the payments.