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Managerial discretion, say on pay, and CEO compensation

J. Samuel Baixauli-Soler (University of Murcia, Murcia, Spain)
Gabriel Lozano-Reina (University of Murcia, Murcia, Spain)
Gregorio Sánchez-Marín (University of Murcia, Murcia, Spain) (University of Alcalá, Madrid, Spain)

Management Decision

ISSN: 0025-1747

Article publication date: 7 September 2020

Issue publication date: 2 July 2021




The purpose of this paper is to analyze the influence of managerial discretion on the effectiveness of say on pay (SOP) as a governance mechanism. This goal covers an important gap since the issue of how effective SOP is in promoting more aligned compensation has proved somewhat controversial.


This empirical research opted for a panel methodology for the period 2003–2017, using a sample of large UK listed-companies (specifically, 3,445 firm-year observations). Data were obtained from several sources (Manifest Ltd, BoardEx, Worldscope, Factset Ownership and DataStream).


Results show that managerial discretion plays an important role in the effectiveness of SOP as a mechanism for increasing aligned CEO compensation. While individual discretion (latitude of objectives) exerts a negative effect, contextual discretion (latitude of action) increases SOP effectiveness. The global effect of managerial discretion is positive when there is high level of both individual and contextual discretion.


This empirical study provides evidence concerning an emerging topic in the literature regarding the impact of SOP as a shareholder activism mechanism of corporate governance on executive compensation. By taking managerial discretion into consideration as a relevant moderating factor, it also offers a better explanation of SOP effectiveness as a governance mechanism.



This work was supported by the Spanish Ministry of Science, Innovation and Universities (under Project ECO2017-84209-P), the University of Murcia (under the FPU program), and the Fundación Cajamurcia.


Baixauli-Soler, J.S., Lozano-Reina, G. and Sánchez-Marín, G. (2021), "Managerial discretion, say on pay, and CEO compensation", Management Decision, Vol. 59 No. 6, pp. 1333-1362.



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