by
Audra Boone, Neeley School of Business at Texas Christian University
Wednesday, October 9, 2019 | 2:00pm-3:30pm | Room 337, HSBC Business School Building
Abstract
We examine the SEC’s newly-mandated CEO pay ratio disclosure rule, which reports the compensation of the CEO divided by that of the median employee. Proponents of the rule argued that disclosing the ratio would shed light on pay disparity, while opponents claimed that the ratio would not be informative because of differences in labor structure within organizations even within the same industry. We find that higher pay ratios attract negative media attention and are associated with reductions in labor productivity and shareholder voting support for executive compensation. Using a textual analysis, we find that firms with higher pay ratios tend to spin the disclosure in an attempt to influence the perception of the ratio. High pay ratio firms that spin the disclosure experience significantly smaller reductions in labor productivity, but spin has little influence on shareholder voting dissent. Our results shed light on the real effects of disclosing information about pay disparity between executives and employees.
