Evidence on the outcome of Say-On-Pay votes: How managers, directors, and shareholders respond

The economic value of the Say-On-Pay (SOP) provision of the Dodd–Frank Act has been a subject of debate. Proponents of this provision suggest these votes benefit shareholders by increasing investor influence over managerial compensation. Opponents of the SOP provision believe compensation contracting is better done by well-informed and unobstructed boards of directors. Our study provides direct evidence on the impact of the shareholder SOP votes by examining responses to the vote. We find that overcompensated managers with low SOP support tend to react by increasing dividends, decreasing leverage and increasing corporate investment. However, we find no evidence that management's response to the vote affects subsequent vote outcomes, nor do we find a subsequent change in firm value. Finally, we find excess compensation increases for managers that were substantially overpaid prior to the SOP vote, regardless of the outcome of the vote. Thus, it does not appear that the SOP legislation has had the intended effect of improving executive contracting. •We examine managers' and directors' response to low shareholder Say-on-Pay support.•We predict managers may entrench, align with shareholders, or window-dress.•We find low SOP support is driven by excess CEO compensation and poor performance.•Managers make symbolic increases in R&D/CAPEX, trade coupon payments for dividends.•Excess comp. persists, suggesting window-dressing, but investors are not deceived.