![]() Indian financial market offered great potential for investment through institutional investors. ![]() Quickly, three proxy advisory firms came to the market with differing ownership structure. Then we study the Indian Proxy Advisory Industry, which was born when the market regulator SEBI came out with a regulation in 2010 on “mutual funds” shareholding resolution voting policy. The paper first traces the history of the global proxy advisory industry and also reviews the literature. This paper analyses the status of budding proxy advisory industry in India using a case study method. ![]() Proxy advisory firms play a significant role in shareholder voting and in the formulation of corporate governance policy. Directors in firms with CEO pay ratios that are below the industry average, however, are willing to increase CEO pay regardless of SOP voting outcomes. Directors in firms with pay ratios that are above the industry average are less willing to increase CEO pay when they anticipate shareholder votes against a CEO pay increase than when they anticipate positive SOP voting outcomes. Results also demonstrate that say‐on‐pay votes only influence directors' compensation decisions when the CEO pay ratio is above the industry average. ![]() Results indicate that CEO pay ratio disclosures significantly influence directors' decisions regarding executive compensation, leading directors to be less willing to increase CEO pay when the pay ratio is above the industry average pay ratio. We conduct an online experiment with practicing corporate directors to examine the effects of CEO pay ratio disclosures and say‐on‐pay (SOP) votes on director decisions. Investigation of the pay ratio disclosure rule offers opportunities to gain insights into whether equity perceptions associated with mandated pay ratio disclosure have significant effects on remuneration decisions in organizations. The purpose of this study is to shed light on the effects of the CEO pay ratio and say‐on‐pay votes on directors' concerns about CEO pay equity. Thus, the proprietary models used by proxy advisory firms for say-on-pay recommendations appear to induce boards of directors to make choices that decrease shareholder value. Third, the stock market reaction to these compensation program changes is statistically negative. Second, a significant number of firms change their compensation programs in the time period before the formal shareholder vote in a manner consistent with the features known to be favored by proxy advisory firms apparently in an effort to avoid a negative recommendation. First, proxy advisory firm recommendations have a substantive impact on say-on-pay voting outcomes. Analyzing a large sample of firms from the Russell 3000 that are subject to the initial say-on-pay vote mandated by the Dodd-Frank Act, we find three important results. Using proprietary models, proxy advisory firms, primarily Institutional Shareholder Services and Glass, Lewis & Co., provide institutional shareholders with a "for" (positive) or "against" (negative) recommendation on the required management say-on-pay proposal in the annual proxy statement. This paper examines changes in executive compensation programs made by firms in response to proxy advisory firm say-on-pay voting policies.
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