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

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