SUMMARY This paper examines a sample of 36 firms that received a majority of negative shareholder votes on their executive compensation plan in the first round of Dodd-Frank mandated “say-on-pay” voting in 2011. Relative to a control group, the 36 firms tend to perform poorly and have high CEO pay in the pre-vote period, and especially in 2010. We find that about 20 percent of the rejected firms also had income-decreasing restatements that impact the five-year period before the vote, compared to only 3 percent for a control group. The rejected firm sample also has weaker internal controls, as well as greater increases in audit fees in the year before the vote. The voting highlights how rejected firms tend to have higher audit risk environments in the years preceding the say-on-pay vote. In addition, since over half of the restatements occur after the say-on-pay vote, the findings also suggest that auditors should use voting as an input to their risk assessments.
