Do Directors Suffer External Consequences for Poor Oversight of Executive Compensation? Evidence from Say-on-Pay Votes

57 Pages Posted: 21 Aug 2016 Last revised: 27 Nov 2016

See all articles by Kelly R. Brunarski

Kelly R. Brunarski

Miami University of Ohio - Department of Finance

T. Colin Campbell

University of Cincinnati - Department of Finance - Real Estate

Yvette S. Harman

Miami University

Mary Elizabeth Thompson

Miami University of Ohio - Department of Finance

Date Written: November 18, 2016

Abstract

We provide the first evidence of significant external labor market penalties when directors fail to properly oversee executive compensation. When shareholders express disapproval through low Say-On-Pay (SOP) support, equity values decrease at firms linked by a shared director (interlocking firms), directors lose external board seats and compensation committee positions, and external directorial compensation decreases. Additionally, shareholder scrutiny increases at interlocking firms: shareholders are more likely to select annual SOP voting and offer low subsequent SOP support. We also provide the first evidence that SOP votes provide shareholders with a valuable mechanism to influence director incentives, and therefore, executive compensation contracts.

Keywords: Director Reputation, Director Labor Market, Director Turnover, Say-on-Pay, Corporate Governance, Executive Compensation

JEL Classification: G34, G38, J33, M52

Suggested Citation

Brunarski, Kelly R. and Campbell, Timothy Colin and Harman, Yvette S. and Thompson, Mary Elizabeth, Do Directors Suffer External Consequences for Poor Oversight of Executive Compensation? Evidence from Say-on-Pay Votes (November 18, 2016). Available at SSRN: https://ssrn.com/abstract=2826640 or http://dx.doi.org/10.2139/ssrn.2826640

Kelly R. Brunarski

Miami University of Ohio - Department of Finance ( email )

Farmer School of Business
Oxford, OH 45056
United States
513-677-2750 (Phone)

Timothy Colin Campbell (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Yvette S. Harman

Miami University ( email )

Department of Finance
Oxford, OH 45056
United States
513-529-5986 (Phone)

Mary Elizabeth Thompson

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

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