It’s not all about pay: the influence of compensation committee on say-on-pay

Purpose This study examines whether the quality of a firm’s compensation committee influences shareholders’ say-on-pay support. Design/methodology/approach Focusing on a large sample of US Fortune 250 firms, we examine whether a high-quality compensation committee is associated with higher shareholder support for executive compensation. We utilize an aggregate measure of attributes for compensation committee quality that includes directors’ interdependencies, their tenure, holding a chief executive officer position, the number of seats they hold and committee size. Findings Results show that high-quality compensation committees influence shareholders’ support in their say-on-pay votes. Moreover, shareholders are less likely to dissent against excessive executive compensation in the presence of a high-quality compensation committee. Originality/value While policymakers have set the regulation to curb excessive executive pay through shareholders’ votes, this study reveals that factors other than the excess pay itself may influence shareholders’ perceptions. For instance, investors appear concerned with the compensation committee’s effectiveness when evaluating executive pay.