'Say-on-Pay' Votes and Compensation Practices

We examine the causes and consequences of “say-on-pay” votes mandated by the Dodd-Frank Act of 2010. We hypothesize and find that shareholder disapproval increases with the amount of total and abnormal compensation, decreases with the number of pay-restraining provisions, and decreases with the quality of compensation disclosures. Shareholder disapproval also correlates with contemporaneous director turnover. We also find that boards respond to shareholder disapproval by amending compensation policies to reduce that opposition. Such alterations do have the hypothesized effect of reducing the amount of shareholder dissent for the following year