Abstract
This study explores the magnitude of shareholders’ say-on-pay (SOP) votes and its impact on CEO compensation. This study draws its sample from US Russell 3000 companies, the largest US companies, from 2011 to 2019. By creating a dummy variable, we further divided our sample into Russell 3000 and S&P 500 for peer comparison. This study employs descriptive statistics, correlation analysis, and pooled OLS regression and finds that CEO compensation has a significant negative association with pay gap opposition. The coefficient and t-statistic were greater for the S&P 500 than for the Russell group. The study also finds that the CEO-to-employee pay ratio (CTE) is positively correlated with the number of shareholders’ dissenting votes. The coefficient and t-statistic were greater for the Russell group than for the S&P 500 group. Each additional point of CTE increases shareholder dissent votes by 1.4% for the Russell 3000 companies. This study has important implications for corporate directors, investors, and policymakers. The study contributes to the corporate governance literature, particularly on executive compensation. Our findings support the perspective of social comparison theory and contend that shareholders view CEO compensation as a biased evaluation of their contribution to the firm. We have developed a unique measure of the CEO-to-employee pay ratio, which is based on SEC methodology. Our findings provide empirical evidence for investors and policymakers in the U.S. and other jurisdictions.
Published Version
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