Title

Investor reactions to company disclosure of high CEO pay and high CEO-to-employee pay ratio: An experimental investigation

Publication Type

Journal Article

Publication Date

1-2016

Abstract

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.

Keywords

Dodd-Frank Act, CEO compensation, CEO-to-employee pay ratio, investor judgments

Discipline

Accounting | Corporate Finance

Research Areas

Accounting Information System

Publication

Journal of Management Accounting Research

Volume

28

Issue

1

First Page

107

Last Page

125

ISSN

1049-2127

Identifier

10.2308/jmar-51392

Publisher

American Accounting Association

Additional URL

http://dx.doi.org/10.2308/jmar-51392

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