Essays on Say-On-Pay

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Business and Management


Doctor of Philosophy

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Say-on-pay (SOP) provision of the Dodd-Frank Act of 2010 empowers shareholders by mandating advisory voting on executive compensation during annual meetings. Extant literature maintains that the degree of effectiveness of SOP and the dynamics of the voting process remain unclear. Since its introduction, fewer shareholders are voting to disapprove executive compensation proposals. In this three-part essay dissertation, I draw on Agency Theory and Prospect Theory to examine factors that drive shareholder voting behavior and investigate some consequences of shareholder dissent votes. I also examine and discuss shareholder abstention votes. Using shareholder voting data from 2011 to 2015, I estimate cross-sectional and logistic regression models and find the following: (1) firm years characterized with strong governance mechanisms, such as strong board of directors and compensation committee members, record lower SOP dissent votes, (2) SOP dissent votes are associated with subsequent reduction in Chief Executive Officers’ (CEO) compensation, (3) insufficient evidence to support a positive association between SOP dissent votes and subsequent improvement in firm performance, (4) SOP dissent votes are positively associated with CEO turnover decisions in large firms, (5) SOP dissent votes are positively associated with subsequent CEOs’ risk-taking behavior, measured as research and development expenditure, and (6) SOP abstention is positively associated with information asymmetry. This study contributes to the growing body of research on SOP votes. I provide evidence that the composition and structure of the board of directors are associated with SOP voting outcomes, and boards are responsive to shareholder dissent votes. Furthermore, I document that SOP dissent votes are associated with increases in CEOs’ risk-taking behavior. Finally, I shed light on SOP abstention votes. These findings are important to regulators and policy makers who are concerned that SOP votes will be ignored because they are advisory and non-binding.