Are There Spillover Effects from Negative Say-on-Pay Votes?
32 Pages Posted: 19 Jun 2019 Last revised: 10 May 2022
Date Written: May 10, 2022
We provide evidence that when more than half of a firm’s voting shareholders disapprove of the executive pay plan, the spillover effects are significantly positive for peers of non-financial firms and significantly negative for peers of financial firms. The valuation effects are positively related to equity-based compensation and negatively related to cash-based and excess compensation. The no-votes are also associated with significant changes in compensation in the following year. In general, peer firms take action to align compensation with shareholder interests by lowering cash-based pay, increasing equity-based pay, and reducing excess compensation. Financial firms lower equity-based and excess compensation, suggesting they may alter pay in a manner that reduces regulatory pressure and the perception of CEO overpayment. Our results show far reaching effects from say-on-pay regulations, where even peer firms feel pressure to change their compensation following a no-vote.
Keywords: Say-on-Pay; Peer Effects; Compensation
JEL Classification: G30, G38, M41, M48
Suggested Citation: Suggested Citation