Market Feedback Effect on CEO Pay: Evidence from Peers’ Say-on-Pay Voting Failures
2019 Annual Congress of European Accounting Association (EAA), 2020 Canadian Academic Accounting Association (CAAA) Annual Conference, 2022 FMA (US) Annual Conference
61 Pages Posted: 12 Nov 2022 Last revised: 21 Nov 2022
Date Written: August 17, 2022
We find that a firm’s stock price drops when its compensation peer firm announces a severe say-on-pay voting failure. This price drop causes a reduction in the focal firm CEO’s pay in the following period. The effect on CEO pay is stronger when the board of directors is more powerful, when the proxy advisor holds a negative view of the CEO’s pay, and when the hired compensation consultant is less reputable. Directors who cut their CEO’s pay following the price drop receive more voting support from investors than other directors. Our findings show that the peer firm’s voting failure induces a market-feedback effect for focal firm directors.
Keywords: Feedback Effect; Learning from Prices; Say-on-pay Vote; Executive Compensation; Spillover Effect; Shareholder Activism
JEL Classification: G34; M12
Suggested Citation: Suggested Citation