Say on pay: how UK companies are using language to win shareholder votes

Does obfuscating excessive CEO pay work? The influence of remuneration report readability on say-on-pay votes

Researchers at the Melbourne Centre for Corporate Governance and Regulation have found that the executive remuneration reports of companies in the United Kingdom can required up to 18 years of education to understand.

Associate Professors Bo Qin and Flora Kuang, together with the University of Groningen’s Reggy Hooghiemstra, are investigating the impact of the readability of the reports on shareholder voting practices.

Using the Fog Index, a linguistic tool that estimates the years of formal education a person needs to understand text on first reading, the trio have found that many reports require at least a post-graduate level qualification to understand.

They have also found low readability correlates with shareholder voting practices – with shareholders less likely to dissent when voting on the content when the reports are difficult to read.

However, the researchers also found that companies with more than 50 per cent of shares held by institutional investors, such as banks, insurance companies, pensions, hedge funds and investment advisors, are more likely to have a dissenting vote where reports are not easily understood

Remuneration reports are circulated as part of a company's annual report and are intended to explain and justify executive pay packets to shareholders.

Companies were first required to start producing them in 2002 to justify the wages they were paying their executives, a move instigated by the UK government in response to rising shareholder activism.

The practice was intended to make listed companies more transparent and accountable, and give shareholders the chance to influence corporate practices.

Read the Newsroom article


The study has significant implications for regulators, showing that unsophisticated shareholders are susceptible to the extent to which information in a remuneration report is presented in a readable form, meaning boards can therefore use ‘readability management' to undermine the efforts of regulators to make compensation arrangements more transparent.

The study supports the view that requiring information on executive pay to be presented in a ‘readable’ way – a measure along the lines of the ‘plain English’ rule in the US setting – might heighten shareholders’ understanding of pay packages and thus facilitate the better functioning of say on pay.



Associate Professor Reggy Hooghiemstra, University of Groningen

Chief investigator

Related research