Compensation Disclosures and Corporate Governance through Shareholder Voting

Proxy statements have reported two measures of annual equity compensation: the grant date fair value and the ASC 718 expense. We examine how investors use equity compensation disclosures in proxy statements to evaluate CEO equity compensation schemes, and the contracting consequences of disclosure regulation changes. We find that both the grant date fair value and ASC 718 expense provide unique information that investors use to evaluate executive compensation schemes. We also find that investors do not change their use of the grant date fair value after the Proxy Disclosure Enhancements rule adopted in 2009 removed equity compensation expense disclosures from proxy statements. However, we find that firms change contracting schemes in response to changes in required disclosures. Our results provide insights into how shareholders incorporate compensation disclosures when participating in corporate governance, and informs current deliberations by the SEC regarding a proposal to require additional equity compensation disclosures.