Mandated Compensation Disclosures and CEO Pay
54 Pages Posted: 27 Jul 2009
Date Written: July 26, 2009
Mandated compensation disclosures provide important information for investors and may play a governance role in reducing excessive compensation and disciplining management. We utilize SEC evaluations of compensation disclosures mandated by rules adopted in 2006 to investigate whether noncompliance with the new regulations is associated with excessive CEO compensation, previous media attention, or proprietary costs. We also test whether subsequent CEO compensation is associated with the level of noncompliance identified by these publicized SEC reviews. We construct several measures of defective disclosures from SEC comment letters and find that disclosure defects are positively associated with excess CEO compensation and media criticism of CEO compensation during the previous year. We find no evidence supporting the contention that compensation disclosure defects are associated with proprietary costs. Furthermore, we present some evidence that the level of defects in pay-for-performance disclosures identified by the SEC is associated with a reduction in excess CEO compensation in the subsequent year.
Keywords: executive compensation, mandatory disclosures, noncompliance
JEL Classification: M52, G32, G38
Suggested Citation: Suggested Citation