Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act
74 Pages Posted: 9 Feb 2021 Last revised: 4 May 2022
Date Written: December 8, 2021
Abstract
This paper examines CEO pay at nonprofits. Using compensation data for 14,765 nonprofits, we find that CEO pay dropped by 2-3% when new legislation adopted in New York reduced the ability of CEOs to influence their own pay. Despite cuts in pay, CEOs exerted more effort after the legislation. Further, nonprofit performance improved, as reflected in larger donor contributions, more volunteers, and other metrics. We show that these results are consistent with the predictions of a simple agency model with compensation rigging. Overall, our results suggest that regulation that targets the pay-setting process can be effective at improving organizational outcomes.
Keywords: executive compensation, regulation, nonprofit organizations, managerial power
JEL Classification: G30, G32
Suggested Citation: Suggested Citation