Shareholder Dissent on Say-on-Pay and CEO Compensation
34 Pages Posted: 16 Mar 2016
Date Written: March 16, 2016
The Dodd Frank Act (2010) empowered shareholders by mandating non-binding voting on executive compensation. This paper investigates the determinants of shareholder dissent on the say-on-pay proposal. Data on S&P1500 firms between 2010 and 2012 reveal various findings. First, fewer than 3% of firms failed to pass their say-on-pay proposals. Second, shareholder dissent on say-on-pay is higher in firms where CEO compensation is high or 'excessive', consistent with agency theory. Third, shareholder dissent is higher in firms with poor performance, measured by stock-market or accounting returns. Fourth, there is less dissent on say-on-pay in firms with better quality boardroom governance (e.g. the presence of a non-CEO lead director or hiring a major compensation consultant). Lastly, difference-in-difference estimates show that the growth in CEO pay is lower in firms that previously attracted high levels of dissent on say-on-pay.
Keywords: Say-on-pay; executive compensation
JEL Classification: G34
Suggested Citation: Suggested Citation