Does “Say on Pay” Work? Evidence from Forced CEO Turnover and Compensation Committee Members Turnover

This study examines the effectiveness of shareholders’ “Say on Pay” (SOP) votes in prompting board responsiveness. Using shareholders’ SOP votes between 2011 and 2016, we find that firms with greater dissent votes are more likely to experience subsequent forced CEO turnover and compensation committee members (CCMs) turnover. We also find that the relationship between SOP dissent votes and subsequent forced CEO turnover and CCM turnover is strengthened in firms with a high level of dedicated institutional ownership, but not in firms with high transient institutional ownership. These findings reveal that dedicated institutional ownership is a channel through which the disciplinary mechanism of SOP votes becomes more visible. Overall, our study provides evidence that SOP votes serve as an effective corporate governance mechanism.