Say on pay determinants in Brazilian public companies

Abstract

This article examines how performance, compensation, and corporate governance are related to the rejection of compensation proposals in Brazil. Regulatory changes have expanded the disclosure of compensation and introduced distance voting, providing new information which was hand collected from 895 minutes of shareholders' meetings and 1,074 voting tables. The sample consists of data from 179 Brazilian companies between 2015 and 2018. Rejection dependent variables were regressed using logit models that considered random effects panel data as well as Bernoulli’s method of quasi-likelihood. The percentage of companies with rejected proposals is below 3%, which is as low as the figure reported internationally. Performance coefficients are positive relative to compensation proposal rejections. Perhaps investors believe that good performance encourages majority shareholder abuse. Certain aspects of compensation are more important than the total amount in explaining rejection rates, which may indicate a certain investor ability to analyze beyond the total compensation figure. The quality of corporate governance is positively associated with rejections while the concentration of control is negatively associated with rejections. The difficulty of rejecting a proposal may explain this result. The findings indicate that these investors are aware of the perverse incentives that good performance can represent, analyze various aspects of the remuneration proposal, and may vote against it under more favorable governance environments. This last aspect suggests that improving corporate governance regulation and expanding opportunities for participation are effective paths for increasing the voice of shareholders.