Mind the Gap: CEO-Employee Pay Ratios and Shareholder Say-on-Pay Votes

Abstract

We examine whether the ratio of CEO to employee pay (the pay ratio) informs shareholder say-on-pay (SOP) votes for a broad panel of U.S. commercial banks. For the vast majority of the sample, pay ratios are substantially lower than the levels criticized in the policy debate and financial press. Nevertheless, voting dissent on SOP proposals is significantly higher for banks in the top pay ratio decile, particularly when there is high institutional ownership. Results are robust to controlling for a number of other determinants of voting dissent, including proxy advisor recommendations and information about executive compensation already disclosed in proxy statements.