Mind the Gap: CEO-Employee Pay Ratios and Shareholder Say-on-Pay Votes
52 Pages Posted: 20 Dec 2017 Last revised: 13 May 2020
Date Written: March 19, 2020
We examine the Securities and Exchange Commission’s assertion in the Pay Ratio Disclosure rule that the ratio of CEO to employee pay is useful to shareholders for say-on-pay (SOP) voting decisions. Using an estimated pay ratio for a broad panel of commercial banks from 2010-2017, we find that voting dissent on SOP proposals is significantly higher in the top pay ratio decile, particularly when institutional ownership is high. Results are robust to controlling for a number of other determinants of voting dissent, including proxy advisor recommendations and executive compensation. Additionally, inferences using the first year of disclosed pay ratios in 2017 for S&P 1500 firms are consistent. However, we do not find similar results in the other deciles of the pay ratio in either sample, calling into question whether a cost-benefit analysis would support the disclosure requirement imposed by Dodd-Frank and implemented by the SEC.
Keywords: Pay Ratio, Say-On-Pay, Dodd-Frank Act
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