Director reputational penalties when shareholders disapprove of executive compensation

We investigate the reputational consequences for directors of firms that receive a low-support Say-on-Pay (SOP) vote. These affected face significantly greater likelihood losing board seats, both at voting firm and in external labor market. However, penalties are not equal all directors. Directors who serve on compensation committees with high chief executive officer pay suffer internal penalties. Both affect entrenchment. Compensation committee members serving more likely to negative reelection recommendation from Institutional Shareholder Services fewer votes reelection, firms. provide first evidence market when fail align contracting shareholder preferences. Our findings suggest nonbinding SOP shareholders mechanism influence director incentives and, therefore, compensation.