Are There Spillover Effects from Negative Say-on-Pay Votes?

32 Pages Posted: 19 Jun 2019 Last revised: 29 Sep 2019

See all articles by Aigbe Akhigbe

Aigbe Akhigbe

University of Akron - Department of Finance

Melissa B. Frye

University of Central Florida - College of Business Administration

Ann Marie Whyte

University of Central Florida

Date Written: September 27, 2019

Abstract

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

Akhigbe, Aigbe and Frye, Melissa and Whyte, Ann Marie, Are There Spillover Effects from Negative Say-on-Pay Votes? (September 27, 2019). Available at SSRN: https://ssrn.com/abstract=3402573 or http://dx.doi.org/10.2139/ssrn.3402573

Aigbe Akhigbe

University of Akron - Department of Finance ( email )

Akron, OH 44325-4803
United States
330-972-6883 (Phone)

Melissa Frye (Contact Author)

University of Central Florida - College of Business Administration ( email )

P.O. Box 161400
Department of Finance
Orlando, FL 32816
United States
407-823-3097 (Phone)

Ann Marie Whyte

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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