Shareholder Governance and CEO Compensation: The Peer Effects of Say on Pay

The Review of Financial Studies, Forthcoming

70 Pages Posted: 2 Feb 2017 Last revised: 18 Jul 2019

See all articles by Diane K. Denis

Diane K. Denis

University of Pittsburgh - Katz School of Business

Torsten Jochem

University of Amsterdam

Anjana Rajamani

Erasmus University Rotterdam (EUR)

Date Written: July 5, 2019

Abstract

We document that firms whose compensation peers experience weak say on pay votes reduce CEO compensation following those votes. Reductions reflect proxy adviser concerns about peers' compensation contracts and are stronger when CEOs receive excess compensation, when they compete more closely with their weak-vote peers in the executive labor market, and when those peers perform well. Reductions occur following peers' disclosures of revised pay and are proportional to those needed to retain firms' relative positions in their peer groups. We conclude that the spillover effects of shareholder voting occur through both learning and compensation targeting channels.

Keywords: Say on Pay, Compensation Benchmarking, Peer Effects of Shareholder Voting

JEL Classification: G34, G38, J38, M12, M52

Suggested Citation

Denis, Diane K. and Jochem, Torsten and Rajamani, Anjana, Shareholder Governance and CEO Compensation: The Peer Effects of Say on Pay (July 5, 2019). The Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2909963 or http://dx.doi.org/10.2139/ssrn.2909963

Diane K. Denis

University of Pittsburgh - Katz School of Business ( email )

368B Mervis Hall
Pittsburgh, PA 15260
United States
412-624-0296 (Phone)

Torsten Jochem (Contact Author)

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

Anjana Rajamani

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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