Compensation Benchmarking and the Peer Effects of Say-on-Pay

We document that firms whose compensation peers experience weak Say-on-Pay votes reduce CEO compensation following those votes. Reductions are concentrated in firms with excess compensation and in firms that are less likely to have selected their peers opportunistically. Further, pay composition and the performance sensitivity of new equity grants converge towards those of control firms. Despite compensation reductions in their weak-vote peers, firms do not disproportionately drop those peers from their peer groups. We conclude that boards respond to negative pay signals of their compensation peers and that the effects of Say-on-Pay votes extend well beyond the firms that receive low shareholder support.