Investor reactions to company disclosure of high CEO pay and high CEO-to-employee pay ratio: An experimental investigation
There is significant debate about the usefulness of disclosing the CEO-to-median employee pay ratio, as required under Section 953(b) of the Dodd-Frank Act in the United States. Using an experiment, we find that disclosing higher-than-industry CEO pay (versus comparable-to-industry CEO pay) marginally decreases perceived CEO pay fairness and perceived workplace climate, which is counteracted by a significant positive effect on perceived CEO attraction/retention ability, although there are no significant indirect effects through these perceptions on perceived investment potential. However, incrementally disclosing a higher-than-industry pay ratio (versus disclosing only higher-than-industry CEO pay) significantly decreases perceived CEO pay fairness and marginally deceases perceived workplace climate, and we find a significant indirect negative effect on perceived investment potential through perceived CEO pay fairness. If companies are concerned about negative public perceptions, then our results suggest that pay ratio disclosures may be better able than current CEO pay disclosures at shaming companies into restraining CEO pay.
Dodd-Frank Act, CEO compensation, CEO-to-employee pay ratio, investor judgments
Accounting | Corporate Finance
Accounting Information System
Journal of Management Accounting Research
American Accounting Association
KELLY, Khim and SEOW, Jean Lin.
Investor reactions to company disclosure of high CEO pay and high CEO-to-employee pay ratio: An experimental investigation. (2016). Journal of Management Accounting Research. 28, (1), 107-125. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1523