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Market Feedback Effect on CEO Pay: Evidence from Peers’ Say-on-Pay Voting Failures

Author

Listed:
  • C.S. Agnes Cheng
  • Iftekhar Hasan
  • Feng Tang
  • Jing Xie

    (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau)

Abstract

Our paper shows that when a compensation peer firm experiences a significant failure in its say on pay (SOP) voting, the focal firm’s stock price is adversely affected, and as a result, the CEO’s pay is reduced in the subsequent period. This pay-reduction effect is amplified when the board of directors is more powerful relative to the CEO, when proxy advisors have expressed concerns about CEO pay, and when the quality of the hired compensation consultant is lower. Moreover, directors who react to the price drop and cut the CEO’s pay receive higher voting support from investors in future director elections. Our findings demonstrate the existence of a market feedback effect for directors of the focal firm triggered by their peers’ SOP voting failure. These findings have implications for regulators and offer insights into the efficacy of SOP voting rules.

Suggested Citation

  • C.S. Agnes Cheng & Iftekhar Hasan & Feng Tang & Jing Xie, 2024. "Market Feedback Effect on CEO Pay: Evidence from Peers’ Say-on-Pay Voting Failures," Working Papers 202408, University of Macau, Faculty of Business Administration.
    • Handle: RePEc:boa:wpaper:202408
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    More about this item

    Keywords

    Feedback Effect; Learning from Prices; Say-on-pay Vote; Executive Compensation; Spillover Effect; Shareholder Activism;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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