Proxy Voting and CEO Pay: Evidence from Rejection of the Inevitable Disclosure Doctrine

We document that the percentage of dissenting votes against management-sponsored compensation proposals increases following improvement in CEO job mobility. We exploit the staggered rejection of the Inevitable Disclosure Doctrine (RIDD) by US state courts as an exogenous increase in CEOs’ job mobility. Consistent with the rent extraction view, this effect is stronger for firms with poor performance, overpaid CEOs, and weak corporate governance. Proxy advisor issues more negative voting recommendations and smaller mutual fund families (possessing weaker active voting incentive) dissent more against these proposals after RIDD. Additional evidence shows that dissenting votes limit growth in CEO pay after RIDD.