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Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform
|Title:||Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform|
|Date Issued:||14 Aug 2019|
|Abstract:||Beginning in 2018, publicly-traded U.S. firms were required to report the ratio of the chief executive officer’s (CEO) compensation to that of the median employee’s compensation in the annual proxy statement. Our study examines the effect of the mandated pay ratio disclosure on executive compensation. We find that pay ratio disclosure leads to declines in both total compensation and pay-for-performance sensitivity for CEOs relative to chief financial officers (CFOs). Our effects are strongest for firms that are more sensitive to political pressure. Taken together, our paper provides the first evidence that pay ratio disclosure achieves regulators’ goal of curtailing CEO compensation but also leads to an unintended decline in pay-for-performance sensitivity.|
|Appears in Collections:||
17 Management Accounting: Executive Compensation/Corporate Governance|
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